The classic, legal definition of “Fair Market Value” in a business purchase & sale transaction is the value as determined by the marketplace (or objective purchasers) rather than as determined by a subjective individual. This is what an informed and unpressured buyer would pay to an informed, unpressured seller in an arm’s length transaction (https://www.law.cornell.edu/wex/fair_market_value). The reality of the mergers & acquisitions marketplace is that ten parties all interested in the same business for acquisition could arrive at ten different values they all thought were appropriate to complete the purchase. Each of the buyers would not be wrong in their assessment, however the only price & terms that ultimately matter is the one the owner of the business would accept. The job of a business broker is to get a buyer and seller to “YES”. That is achieved through articulation, education, and persuasion involving information through a spectrum of methodologies directly to the parties or indirectly through other professional advisors on both the buyer & seller’s transaction teams (https://ibainc.com/blog/gregory-kovsky/the-most-important-metric-in-the-selection-of-a-business-broker-to-sell-your-company/). One common obstacle to reaching agreement originating from both the buyer & seller is over negotiation. Another common definition of a “fair deal” is one where both parties feel they gave up a little too much. IBA has an established reputation built over fifty-one years and more than 4400 successfully completed transactions in the marketplace for facilitating “win-win” transactions in environments of full disclosure employing best practices with integrity. The following are some thoughts related to deal terms where we have and are seeing over negotiation occurring in the marketplace.
Price
Sellers have a vested interest in seeking the highest price available in the marketplace (Frankly so does IBA as a sell side focused representation firm paid on performance: https://ibainc.com/blog/gregory-kovsky/why-a-business-owner-should-select-a-business-sale-intermediary-who-is-only-paid-a-success-fee/. Buyers have a vested interest in seeking the lowest price an acquisition can be completed. Both parties should acknowledge this fact before starting negotiations. It is the field of play that M&A transactions have been completed on since 1975 by IBA and existed as a market dynamic long before our firm’s birth.
Given this baseline knowledge, why should a buyer pay more than they want for a business or a seller sell for less than their aspiration. Here are three reasons.
- Time Has Value – Finding a suitable business to acquire in a desired industry, geographic area, or price can be time consuming and expensive. The opportunity cost of missing out on an acquisition can be substantial. Buyers should ask themselves when at the negotiating table if a 5 – 10% premium price is warranted to secure a “bird in hand” versus hunting for an alternative in the bush. Similarly, many of IBA’s clients are members of the Baby Boomer generation seeking to sell to retire, travel, spend time with grandchildren, and/or focus their energy on passion projects. These clients have a finite time left on the planet. A price discount made to secure a buyer may open the door for achieving a sale goal months to years earlier than the alternative time table offered through rejecting a “willing & able” buyer over a small portion of a desired transaction value.
- Financial Terms – Business purchase & sale transactions can have a spectrum of financial terms (Cash, Seller Promissory Note, Escrow Holdback, Earn-Out, Retained Equity, etc.). Cash is typically the preferred financial term sought by sellers. A buyer delivering all or nearly all cash can justify giving on price when the alternative is time deferred or performance contingent money. Conversely, a buyer who finds a seller willing to finance a larger portion of a sale, have an earn-out component, or retain equity might consider doing a transaction at a higher value. Smart buyers often recognize Cash on Cash Return (https://ibainc.com/blog/gregory-kovsky/potentially-the-most-important-return-on-investment-calculation-when-acquiring-a-business-or-commercial-real-estate/) is frequently more important when making a business acquisition investment than the price paid.
- Ease of Transition – Most IBA clients, although seeking the highest possible value for their companies, equally consider the probability of future success of their businesses when selecting a buyer. Consideration about employee, customer, and vendor retention can justify accepting less for a business. No entrepreneur wishes to see their employees lose jobs or customers not be happy post sale. Similarly, buyers should assess the likely dynamics of their integration into executive leadership at a company. If perception is that it will go positive, that fit may justify paying a higher price for a business.
Financial Terms
Effective July 4, 2026 business acquirers can access up to $10,000,000 to acquire businesses and associated real estate using SBA loans (https://www.sba.gov/article/2026/07/07/small-businesses-now-eligible-10-million-sba-financing). Buyer access to these funds can have financial term stipulations that can impact sellers. Frequently, these funding requirements include standby periods and subordination of seller debt. As the Rolling Stones sang, “You can’t always get what you want, but if you try sometimes you get what you need” (https://youtu.be/Ef9QnZVpVd8?si=qvY5EbTa7wJN_KzE), many times it is prudent for a business seller to give the buyer what they need to secure their financing, because that “YES” can create a pathway for an entrepreneur to get what they want, a sale and transaction with a high percentage of cash paid at closing. It is not uncommon in IBA facilitated transactions involving SBA financing in support of the buyer for our clients to receive 90% or more cash at closing.
On the buyer side, negotiations about whether to give a seller a personal guarantee or real estate collateral for their promissory note can say “I do not have high confidence in my ability to successfully run this business”. Those elements will likely be provided to a bank. A seller financing a portion of an acquisition for a buyer is serving as a bank and deserves equal treatment to other lenders and investors supporting the buyer.
Flat versus Modified Representations & Warranties
All experienced business brokers and attorneys know that the trench warfare related to business purchase & sale legal documents frequently occurs over the issue of whether specific representations and warranties will be flat or modified, commonly with the verbiage “to the best of my knowledge”. Attorneys frequently sell fear in this area, creating concerns about exposure. An experienced M&A intermediary will seek to create an environment of full disclosure where parties own reasonable responsibilities and downstream risk is quantified. The reality has always existed for entrepreneurs, a risk acceptant demographic, that if they listened to their attorneys 100% of time their income and success would be diminished. I will let you in on a secret, the world is messy and unpredictable. Frequently, you cannot solve problems to perfect outcomes as an entrepreneur. If you accept that, negotiating legal documents to execution becomes much easier.
The above are three major areas where negotiations can stall or fail due to parties passing a “hot potato” back and forth one too many times. There are others: tax allocation, exclusivity periods, contingency waiver timing and procedures, non competition agreements, transition employment and/or consulting, etc. Deal fatigue is a real thing. Parties get mentally & emotionally weary if too many items are negotiated over too long of a time period. It is my recommendation that if you want to successfully complete a transaction be thoughtful in how you conduct negotiations and engage experienced, knowledgeable, highly skilled professional advisors to provide guidance on what is market and reasonable before commencing negotiations.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.