Some sellers prefer a strategy of initiallyoverpricing a business, then backing down the pricing curve until the market responds to a given asking price.
“Everybody is familiar with the saying ‘We can always reduce the price but can never go up,’” says Achim Neumann, President, A Neumann & Associates, LLC, a New Jersey based M&A and business brokerage firm, “and following that logic, some owners like to start with an inflated asking price.”
However, significantly overpricing a business – many advisors call it a “fishing expedition” – nearly always translates into significant problems with a broad set of negative consequences:
There is simply no good reason in overpricing a business, as buyers will ultimately only pay the fair market business value for an acquisition.
Conceivably, there could be a 10% to 20% price premium available in a very few special scenarios from a strategic buyer – implicitly the result of perceived cost savings or additional revenue opportunities from the merger – but going beyond such price premium creates more challenges than benefits, including considerable downside.
“We always request an independent fair market valuation prior to marketing a firm, and we absolutely do not represent over-priced businesses”, says Gary Herviou, ANA Vice President. “However, we wish all the folks still considering an over-pricing strategy all the best.”
About A Neumann & Associates, LLC
A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage with more than 30 years of experience in CT, NY, NJ, PA, DE, MD, VA and NC that assists business owners and business buyers with the business transfer process in a completely confidential manner. The company is affiliated with national networks of qualified investors and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.