Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

September 11, 2016

Badly Overpriced Businesses

By Joseph Eneldas


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:

  • The business won’t sell but will generate a lot of wasted time, unproductive buyer introductions, and so forth for the seller (and advisor) and will be “on the market” for a long period of time until the seller adjusts the price to market conditions;
  • Competitors are eager to look at the business (in order to learn more about its customers, employees, financial condition, and business practices) with no real intent to proceed but with a great opportunity to gain competitive knowledge;
  • The longer a business is “on the market,” the more likely it is that confidentiality will eventually be breached – with key information conceivably making the rounds to competitors, employees, customers, landlords, and banks;
  • Once employees find out the business is for sale, they tend to leave if not otherwise “retained” with an extra “transition” bonus, resulting in higher expenses for the seller. Worse yet, the “rumor mill” will distract employees from doing their jobs and reducing productivity. Soon the rumors will spread from employees to customers and vendors;
  • Customers are likely to shift their order patterns to alternate supply sources due to concerns about future product supply;
  • Vendors may cut credit lines, and if it’s a manufacturer’s rep situation, the vendors may look for alternative representatives;
  • Meanwhile, management will be kept busy fighting the pending sale rumors in order to hold on to customers, employee and vendors;
  • Landlords and banks will be reluctant to extend agreements due to concerns about the viability or creditworthiness of the potential new owners of the business;
  • If a breach in confidentiality leads to a defection of vendors, employees, or customers, the business cash flow will decline, requiring a re-valuation and re-positioning at a lower price than the original fair market value.

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 mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or

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Client Testimonials

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

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“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

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“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

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Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

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Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs
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