Why do some companies sell to pe firms for lower price
when sourcing deals, it’s usually an auction right. Why do some companies want to sell for lower price to a specific firm when some firms offer a much higher price? I hear that it’s because the management plan and restructuring is good af or whatnot, but in the end, the owners are still selling 100% of the company for less than what they could’ve gotten? So why do they do that?
The easy answer is they don't - the vast majority of auctions either go (1) the highest bidder or (2) the bidder that has the highest certainty of closing, either structurally or due to fewer diligence / financing requirements.
There are of course exceptions - a founder is rolling a significant stake and is looking for a partner that will be easy to work with and maximize value when the ultimate monetization happens. Or, the company is a founder's legacy, and he has a point of view that one firm will keep the company around vs. another - and $130 vs. $140M in the bank honestly doesn't make that much of a difference when your legacy is at stake. Etc...
Yep agree with all the above. A founder could retain, say, 40% of the equity and sell for a lower price to the buyer she/he thinks could maximize value down the line. Plus, if the founder is actively involved with day to day management, there’s an element of personality fit.
In an auction... - Depends on the structure of a deal. A lower all cash offer may be better than a higher offer that has an earn out and seller note (i.e. - Owner doesn't think he will get the earn out and doesn't want to leave debt with a buyer when they don't have control of the business anymore). - Could have to do with plan for the employees. One buyer may have a management option pool while another would cut staff. - One buyer loads the company with debt, while the other funds with all equity (could inhibit future growth).
Outside of an auction... - Owner is scared of word getting out, so doesn't want to go to a wide group of buyers. - Owner wants to close a deal quick, so sells to the PE firm that has been "knocking on the door". - Owner doesn't want to sell to a strategic because some employees may lose their job.
Sed possimus ea impedit optio ab aut. Rerum architecto et quod dolorum.
Nulla consequatur cupiditate incidunt autem quas voluptatum. Magnam et omnis dicta voluptatem. Reiciendis quos iusto quis hic neque vitae impedit rem. Eos ullam odio magni ea.
Recusandae aliquid nobis enim aperiam. Quas neque temporibus sequi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...