Not All Businesses are Distressed

It’s quiet here lately because, with business partners, I am up to my ears in a small business we acquired a couple of weeks ago. But that isn’t what’s on my mind today.

Another business partner and I own a business together in the States. Earlier this year my partner was approached by a man who wanted to buy our business. He seemed serious about it. He outlined the deal structure he had in mind and his motivation sounded sincere. The business isn’t on the market for sale, but we’re always open to a reasonable offer. We discussed it and decided to see what he had in mind.

When he got around to discussing price, he wanted to pay about a third of what the company is worth. I have access to proprietary business valuation tools that most people cannot come close to emulating in the low to mid market for mergers and acquisitions. (Those tools were developed by one of the businesses I’m involved in over here in the UK, where we use them to advise business owners preparing to exit or to expand through acquisitions, and to evaluate our acquisition targets.) We know what the business is worth. To make matters worse, he wanted to put very little cash in at deal completion, wanted us to take the full risk on deferred payment, and wanted my partner to essentially work as slave labor for the next three years.

This is the type of deal people offer when they believe all small businesses are in great distress from the pandemic and can be acquired for peanuts. Ours just had its most profitable year ever. It’s well known all over town as a quality brand. He had enough intelligence to recognize that and not attempt to buy only the book of business instead of the entire company. But aside from that, he paid no further attention to the business. He threw a lowball offer at us on the assumption that we must be in dire straits without realizing we are thriving.

If you are in the market to buy a business right now, there are indeed some available at a discount because the pandemic hammered them. But don’t be an idiot. Not all businesses are in distress. The man who approached us can’t come back to us with a reasonable offer. He has poisoned this well with his initial assumptions and his self-portrait as a bottom feeder. We would not trust him.

He isn’t the first to do this. He probably won’t be the last. But you? You can do better.