Yes, offer price and valuation in a merger and acquisition (M&A) deal are negotiable, but these negotiations can be complicated, especially when a company’s shares are not publicly traded.
When there are differences between a buyer’s and seller’s opinion on valuation – and there usually are – it will have to be negotiated in order to bridge the valuation gap.
As you consider how to approach a M&A valuation negotiation, it’s helpful to evaluate several of the following factors to ensure that a buyer’s offer equals or exceeds the market value of your company. These include, but are not limited to understanding:
- The valuation used during your last round of business financing or your company’s most recent 409A valuation.
- What market comparables are showing and whether you are growing faster than your competitors.
- Who your buyer is, if there are multiple bidders and whether they are a financial buyer or a strategic buyer.
- The payout price for recent shares sold by employees or early investors.
- Whether your company may be in a position to conduct an IPO.
In addition, it’s also important to look back at your company’s historical financial performance and projected growth. You may also consider your business sector, any intellectual property you own or license, and other risks and assets your company holds.
There are ways to come to favorable valuation terms and bridge any differences of opinions, but it’s important to have an experienced M&A attorney at your side when you do it. For example – if the other side is firmly stuck on the price, you might be able to negotiate on the terms, such as increasing or decreasing the amount of the seller’s note, that will make the deal more amenable to both parties.
For help navigating the challenges and opportunities a business sale or purchase can present, get in touch with our commercial law team at Silverberg|Brito, PLLC today.