Seller financing options are redefining business acquisitions, especially in the lower-middle market, where buyers seek alternatives to traditional bank financing. These options facilitate smoother transactions, offering various structures like seller notes and earnouts. Both buyers and sellers gain flexibility, quicker closings, and potential advantages, while understanding associated risks is crucial for success.
Navigating the business acquisition process in today’s market is more complex and crucial than ever. With high stakes for both buyers and sellers, […]
Discover the key differences between financial buyers and strategic buyers in 2025 M&A. Learn which buyer type best maximizes value and aligns with your goals.
Mergers and Acquisitions (M&A) success hinges on both parties agreeing on a fair valuation of the target company. When differences arise, those differences must be addressed or the deal will not close. This requires clear communication of each party's goals, conducting fact-based due diligence, considering creative deal structures, recognizing synergies, using independent valuations, and including non-financial considerations.
The article discusses the importance and complexity of adjusted or normalized EBITDA in M&A transactions, focusing on add-backs, which adjust the EBITDA to reflect a company's financial performance accurately. However, these additions require careful handling, buyer agreement, and substantial documentation to maintain valuation integrity and seller credibility.
Choosing the right method to sell a business is crucial. Sellers can decide between a negotiated sale with a few potential buyers, or use a narrow or broad auction process, with up to 50 and over 300 potential buyers respectively. The best approach depends on various factors such as the seller's objectives, need for confidentiality, speed of selling, and flexibility. A broader approach for marketable businesses may result in unexpected high-quality buyers and high valuations.
In M&A negotiations, it's crucial to establish "red lines" or deal-breakers early, aim for mutual gain, and keep key decision-makers involved. Unaddressed issues can result in deal cancellation at the last moment, wasting resources. Sellers' "red lines" often involve value, share structure, non-competition clauses and transition contracts and should be clarified upfront. A successful close is enhanced when all key decision-makers are engaged, critical terms addressed early and an open mind maintained to resolve issues.
The article discusses various strategies to bridge the valuation gaps between business buyers and sellers. It mentions using earnouts and milestone payments tied to future performance metrics, keeping part of the purchase price in escrow, seller financing, equity rolls, discounts on future commercial relations, retention of real estate by the seller, anti-embarrassment protection against quick resale, carving out lesser-valued business components, and having a solid transition plan to retain key personnel.
The article discusses how business sellers can mitigate the potential risk of 're-trade', a situation when deal terms are revised negatively at the last moment. Key strategies include proper preparation before negotiations, carrying out due diligence from a buyer's perspective, outlining non-negotiable terms to potential buyers, having alternate options, and validating the buyer's due diligence. The seller should be wary of certain warning signs that a re-trade may be forthcoming, such as vague offers, inadequate due diligence, and poor understanding of the business.
When selling a business, the timing and approach to engaging with potential buyers is crucial. A measured approach is necessary to maintain buyer interest and avoid potential pitfalls. Clear objectives should be defined before initiating discussions; their interest and strategic fit should be assessed before discussing value. Testing the waters before being prepared to sell or without realistic expectations can lead to negative consequences. Engaging an experienced M&A advisor can help determine a value estimate and facilitate negotiations. Sequentially engaging with buyers individually may complicate transactions.