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When is the Bird in the Hand Worth It?

“Do you think we will ever get this deal done? Maybe I should pull back and wait another year or two to sell the company. I could sell it for more, right?”

Rhonda (not her real name) is frustrated, and for good reason. The buyer had scheduled closing for April 30, and things were moving along nicely until the pandemic hit. The buyer’s due diligence team flew back to their home office on March 12, and nothing has happened since. Everyone and everything is on hold. We can’t set a date for closing because we don’t know when the due diligence team can finish their work.

Fortunately, waiting for closing isn’t the worst thing for Rhonda. Her B-to-B services company has not been negatively affected by the pandemic shutdown, and she’s on track for another seven-figure annual EBITDA. However, she wants to sell her business and move to Colorado to be closer to her family. Emotionally, she’s ready to go.

We have a good deal in place, too. The terms are solid: all cash, no earn-out, no seller note. The buyer loves Rhonda’s management team and employee base; they will all be able to keep their jobs, and that was important to Rhonda from the beginning of our process. All in all, we have the “right” buyer.

But the buyer’s bank requires a certain level of due diligence, and even if it’s perfunctory, they still have to go through the process. Until that’s done, we can’t close. So we wait.

At her current pace, her 2020 EBITDA will be about 6% higher than 2019. Our valuation was based on her 2019 EBITDA, so at some point, I will have to tell the buyer the price is going up or she will wait a couple of years to sell. But remember, Rhonda wants the deal to be done now. So getting her more value while still getting the deal done now will be the tricky part. Taking the bird in the hand isn’t always the best choice.

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."