Buyer’s ROI is King
Oct 23rd, 2009 | By admin | Category: Dealmaking & NegotiatingPrudent buyers are aware of the pricing multiples that pertain to comparable buy/sell transactions, but street smart buyers demand a reasonable return on their investment (purchase) despite what the statistics say other buyers have paid for similar companies.
Why are so many lawyers deal killers? (I am a business broker, and i realize lawyers should kill bad deals but they also kill too many good deals due to endless complaining and unreasonable expectations of the sellers and sometimes of me.)
Because nobody ever sued a lawyer for killing a deal (but they are on the line if a deal goes bad post sale). Also, some want it all for their clients (I’ve seen this on both sides). They want their client to have 99.9% risk coverage and don’t care if the other side has zero coverage.
After many years in the business brokerage industry, I have learned that keeping the deal on track involves a tremendous commitment to “building the team,” including all parties’ advisors, and to extreme communications with all deal players involved. No one else will take this on except the broker(s), but the likelihood of your deal tanking is dramatically reduced if you know what everyone is thinking, doing, and saying and you can intervene quickly enough to keep things together when someone starts deviating. Each attorney needs to feel that they have had their own voice heard, and many times, that they have been paid for doing something of value. They can contribute something positive that supports their client and may not upset the other parties, but it may be negative– requiring more concessions from the “other side.” It may even be a valid concern, although “we” do not want to hear it. Then the party who RETAINS that attorney needs to recognize who is the DECISION MAKER, and who is the advisor. Many of the best attorneys we work with do remind the buyer/seller that the decision is theirs; that as the advisors, they are pointing out the concerns they have and offering recommendations. If the atty does not frame his role, we need to remind our own clients of this reality. Their atty’s job is to minimize that client’s liability. They are NOT there to make the “deal” work. That’s our job. Again, work really hard on the front end to get to know everyone and bring them all into your sphere, and you will get a lot less “nasty surprises.” I believe that the buyer and/or seller having expert broker representation greatly increases the probability of actually CLOSING. It is a complicated process and the complexities are rarely handled well by those who are not experts in that process. Happy deal making!
I am an investor that has been buying businesses from 1963. I never have problems with attorneys. Retaining an attorney and a broker is part of the deal but I am the only one that can make the decision to buy or not.
What IS a reasonable annual percentage return on my investment (purchase) of a business for sale with approximately $200,000 pretax net profit (”despite what the statistics say other buyers have paid for similar companies”)? In other words, should I expect (demand) 10%, 20%, 30% or more annual ROI? And what about my down payment? If I make a down payment of 25% of the purchase price and then finance the balance, doesn’t that affect my ROI? How do I use my ROI expectation to influence brokers and sellers so they get real about asking prices?
All good answers from professional business brokers above. I think that another reason why lawyers break deals is to minimize their own liability. If they advise a client to move forward with the deal, and then the client fails, he or she may blame the lawyer for bad advise, possibly even sue. However, by giving negative advise lawyer is free of any liability. If client despite lawyer’s advice will move forward and fails, lawyer can’t be blamed for such failure.
Summary: It’s not in lawyer’s best interest to positively advise on business acquisition.
What should we expect from lawyers when buyers bring them a dangerous or dumb deal?
Lawyers SHOULD kill deals that are not worthwhile for the buyer. And we should not blame the messenger for delivering a “negative” message to the buyer.
As a Business Buyer Advocate ®, I and my affiliates help buyers detect the truth about businesses for sale (before buying it). We rarely have to tell the buyer to walk away from a dumb deal. The buyers we represent are smart enough to not (figuratively) die from buyer’s fever — they run, don’t walk from wildly over-priced businesses or from sellers whose story is not consistent with the business’ performance and future.
What is the usual starting offer for a property? Or to state it differently what is the average sold price compared to list price as I have heard most businesses are 30-40% over priced.