Who Will the Seller Listen To? (Hint: It’s Not the Buyer!)
When selling a business, you can’t rely on what the buyers say you’re worth — but an investment banker with integrity will give you an honest valuation.
I’ve been trying to buy a house for over a year now with no luck. Three times, I thought I’d found the perfect property – the right location, the right size, the right amenities – but when I made an offer, the owners flatly rejected it.
I couldn’t understand why. I have a background in real estate, I’d done my research, and I knew I was offering fair market value. The problem was, the properties were listed too high above market.
I really loved the third house, so I went back to the owners with data to back up my offer. I showed them the market conditions for their size of property and that location, with recent comparable sales over the past year. I brought plenty of information and supporting statistics to show that my offer was reasonable, certain that the owners would “see the light.” But they still refused.
Why did this seemingly logical strategy leave me still without a new house, and the property owners without a sale?
The harsh truth is that the sellers’ advisors didn’t do their job. Part of the role of a real estate agent is to make sure the price expectations of the sellers are properly vetted, to make sure they are in line with the market.
And as the buyer, I was perceived as the enemy (at least as far as price negotiation goes). Setting realistic expectations needs to happen up front, and the message needs to come from the seller’s advisor, not prospective buyers that the seller will instinctively distrust.
Can you see where I’m going with this? The same applies to selling a business. The greatest disservice one can do as an investment banker is to allow your client’s expectations to be unrealistic compared to market conditions. Even if in their heart of hearts the client knows the price expectation is too high, the investment banker’s validation of those expectations over time will serve to strengthen the seller’s belief that those expectations are in fact reasonable.
The result is that the seller will endure a long cycle of disruption and frustration, fielding offers that are below expectations. At the very most, the seller will be forced to settle for a transaction they are not happy with (leaving the seller unhappy with the deal and unhappy with their investment banker) – or, if they refuse to settle for less, there will be no transaction at all.
When you sell your company, the single most important thing to look for in your banker or business broker is true integrity, so they will be honest with you about realistic expectations. A good investment banking firm will do the research and homework upfront on the industry in general, and your business in particular, so they can educate you on a reasonable range of what the market will bear – even at the risk of offending you!
The seller and the banker both want the same thing: a successful transaction that exceeds the client’s expectations. You need representation who will be honest with you up front – because you’re certainly not going to trust the buyer’s opinions!