_{Inside the Deal Room is where I share what’s happening behind the curtain as we source, negotiate, acquire, build and scale businesses through Vyterro and our deal ecosystem.}

Imagine a seller is asking $5M for their business.

Before you've even spent much time with the financials, it's easy to start thinking about whether they'd take $4.5M instead. I catch myself doing this all the time. By default, the seller's number becomes the starting point. You're thinking about if they’d come down, what they'd realistically accept, and how much room there is to negotiate.

The problem is that none of those thoughts provide any insight into what the business is actually worth. You can spend weeks trying to negotiate a seller from $5M to $4.5M without ever stopping to ask whether the business was worth $3M or $6M in the first place. 

Over the years, I've found that asking prices are most useful when I stop treating them as valuations and start treating them simply as information. The number matters, but not as an objective anchor.

When I see an asking price, I'm generally less interested in the number itself than I am in how the seller arrived at it. Did the seller come up with it on their own? Did the broker suggest it? Did they have a valuation done? Are they basing it on another transaction they heard about (i.e. comps)? 

Then I'll try to understand how they actually got to the number. The asking price can be vastly different depending on which method is used. Is it based on TTM earnings? A three-year average? Future projections (hopefully not)? The answer to these questions often tells me more than the asking price itself. 

I've seen sellers ask very reasonable prices for their businesses. I've also seen sellers ask for numbers that were completely disconnected from what the market would support. The asking price alone doesn't tell you which situation you're dealing with, but it does give you a starting point for understanding the seller’s mindset.

At the end of the day, the asking price is just another data point. It belongs in the same bucket as reason for selling, financial volatility, growth trends, owner involvement, and everything else that goes into valuing a business. It's worth paying attention to, but I don't want it driving my conclusion before I've done my own work.

One thing I’ve come to appreciate more over time is that a decent amount of asking prices are actually reasonable. Good brokers tend to understand this better than they’re given credit for (look at me giving brokers credit).

The reality is, brokers are not trying to sit on listings for a year or fight through multiple rounds of re-trading to get an extra 5%. Most of them make money by getting deals across the finish line and keeping both sides moving - it’s a volume game. Quite simply, selling two businesses for $5M with low friction is better for them than fighting to sell one for $6M. 

So, when I come across a business where my own valuation ends up being close to the asking price, I don’t really see a reason to negotiate for the sake of negotiating. I’d much rather retain the good faith with the seller/broker and make it a win-win. The bonus of this is that being reasonable and fair early on typically signals to the seller’s side that I’ll probably continue to be moving forward. This makes me more attractive as a buyer in general (gaining a competitive advantage without giving anything concrete up… see my newsletter on seller motivation for more on that).

The objective is still the same: buy a good business at a fair price. Sometimes that happens to line up quickly. Why fight it?

The other side of this is probably more familiar to most buyers. You see businesses every day where the asking price just doesn’t line up with what the business is actually generating or what the market tends to support. 

There are a few ways this shows up. Sometimes the seller is anchoring to a single, unusually strong year. Other times they're applying a multiple that might make sense for a much larger, lower-risk company.  The worst is when the seller just has an arbitrary number in their head, rooted in absolutely nothing except maybe their retirement goals, and they’ve become attached to it.

In any of those situations, I usually don’t spend much time trying to correct the seller’s expectations. That process tends to take care of itself once enough buyers walk away. Instead, I’ll usually put it on the backburner for a while. I’ll email the broker, letting them know what my valuation range is and tell them I’m still interested if pricing expectations ever change. Then, I’ll make a note in my tracking spreadsheet, and follow back up in 3-6 weeks to see where they’re at.

In a lot of cases, nothing changes immediately. The listing just sits there. More often than not though, reality tends to show up. Other buyers also pass, conversations stall, banks push back on financing assumptions, and eventually, the feedback loop forces a more grounded view of what the business is actually worth.

I’ve had deals where the initial pricing made them easy to ignore, only to have them come back months later in a very different place once expectations adjusted. This is actually where a good amount of my deals come from: being patient and waiting for other buyers to scatter while the seller comes to terms with what their business is actually worth.

This type of situation is also where it can make sense to revisit the IOI approach from the last newsletter. Not as a commitment, but as a way to test whether there’s any real flexibility in how the seller is thinking about value once the market has had a chance to react.

The key point is that not every deal needs to be solved immediately. Some of them just need time to price themselves correctly, and patience is a trait that more buyers should adopt.

No asking price usually makes buyers uncomfortable at first, because it feels like you’re missing the starting point for the conversation. In reality, it’s just a different way of starting the process and it typically happens for one of two reasons.

The first: it’s hard to decide on a valuation. Maybe the business grew quickly, historical financials are volatile, or the industry is niche enough that the broker has no idea what a reasonable multiple should be.  In any of these cases, the seller genuinely doesn’t know what the business is worth, so they let the market decide. For them, it’s better to do this than overprice and get no interest or accidentally underprice and lower the perceived value of the business.

The second: the broker intentionally doesn't want an anchor. They want people to imagine what other buyers might be thinking and try to beat them out. It’s a strategy for starting an invisible bidding war.

Not having an asking price isn’t inherently good or bad. It just means the price discovery happens during the process rather than at the listing stage. The goal in these situations is to get as much information as you can to see what the seller’s expectations might be.

I do this in a few ways. First, I just blatantly ask via email. “Does the seller have a purchase price range they expect?” That actually works probably 50% of the time. If it doesn’t, I find that a phone call with the broker is a very effective method as well. If you can build trust via a conversation, they might let some info slip. If they don’t, my next step, assuming I like the business, is to send an IOI with a wide range and see how they react.

At the end of the day, the work doesn’t change much. You still have to build your own view of what the business is worth, and you’ll get to that answer, just with a little less initial structure from the seller’s side.

It could reflect a seller who knows their market well, a seller whose expectations haven't caught up to reality yet, or a seller who is still trying to figure out what the business is worth in general.

No matter the situation, the process is the same: value the business independently. Then look at how that view compares to what the seller is signaling, whether that’s through an asking price or the absence of one.

If those two perspectives are close, great. If they aren’t, there are strategies to deal with it. Regardless, I’ve found it’s better to keep your own valuation process intact and treat the seller’s number as input rather than direction.

The asking price is worth paying attention to, but it should never get to decide what the business is worth on its own.