Bridging the Asking and Offered Price Gap
By Yossi Haimberg, MBA and Nadav Y. Haimberg, MBA

A business rarely sells at the asking price, even when sellers arm themselves with a professionally performed valuation. In general, the economic value of a business is reflective by its worth in an open and competitive market. However, other forces are in play and understanding the rationale and perceptions that influence price and value determination by buyers and sellers may help a deal reach fruition.

While sellers tend to take the optimistic "Pie-in-the-sky" premise, the buyer's approach is more practical and cautionary:
What determines the seller's value?
" Similar businesses produce similar utilities
" Long-term efficiencies may be maintained or increased after transfer of ownership
" Value is independent of economic and product life cycles
" An exchange-value exists and FF&E help determine value
" Companies within an industry command a uniform and homogeneous value
" State, completeness, and accuracy of financial statements
" Existence of off-books revenues
" Seller's motivation
" Lenient recasting of financial statements
" Seller's sentiment influenced by greed
" Expectations based on future personal financial needs What determines the buyer's price?
" Supply and demand market forces negates comparability
" Long-term efficiencies are unknown. A Pay Back analysis is more appropriate than a discounted cash flow analysis
" Price is directly related to adequate debt service and an expected reasonable compensation (Benefit to Owner) to the buyer
" Business assets may be utilized differently. FF&E has little or no value
" Perceived value (listed price) is always higher than actual price since the seller inflates value to allow for negotiation
" Restrictive recasting of financial information
" Buyer's sentiment influenced by fear
" Post-acquisition operational and financial results are expected to decline in the first year due to learning-curve pressures and unfaithful customers, leading to greatly reduced financial projections and acquisition price read more.....