Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

June 9, 2019

Is Greed in Business Good?

By Jeremy Albelda

is-greed-in-business-good

“Greed, for the lack of a better word, is good,” – famous words by Gordon Gekko in the movie ‘Wall Street’ in 1987 – greed, defined as the excessive desire for more than is deserved or required, for one’s own selfish interest and not for the greater good and often at the detriment of other individuals or society at large.

How does greed apply to deal making for privately held mid-sized businesses?

“Greed and one-upmanship are quite often the drivers to kill deals,” says Achim Neumann, President, A Neumann & Associates LLC, a New Jersey based Mergers & Acquisitions advisory and Business Brokerage firm, ”All too often we see situations, where a business seller and buyer essentially recognize a deal being beneficial to them, yet, their respective desire to ‘win’ the last round of negotiations let the deal ultimately break down.”

Generally, once a decision has been made to sell a business, the key information about the business is collected from the business owner, financials and cash flows are re-casted, a business valuation by a third, accredited party conducted, the marketing documents are prepared and approved and a marketing campaign is initiated. Investors are pre-qualified and will review the confidential memorandum for the business, express interest, and thereafter, are being introduced to the business seller.

If there is continued interest on the buy-side, an offer is prepared and presented to the seller, and it’s at this time that initial emotions are triggered.

For one reason or another, a buyer might not offer full price, leaving the seller disappointed. Alternatively, the seller might indeed offer full price, leaving the seller wondering, if the asking price was properly established, or yet a third option, multiple parties might bid the price up, leaving the seller to seek yet another bidder to join in order to obtain an even better price. Whatever the scenario is, it’s at this point when initial opinions, emotions and attitudes towards the other party are formed, and the very basics of greed are often at play!

For example, on multiple occasions, our firm has worked through a long process of due diligence with both parties, only for the seller requesting a (second) valuation of the business to be done by yet a new valuation firm one week before transaction closing – motivated by the seller’s self-doubts that not the best deal was obtained. (Naturally, said second valuations came in within 3% to 5% of the previous valuation)

In a different scenario, the seller’s (emotional) attachment to certain assets was squarely opposed to striking a deal. For example, certain vehicles used by the seller for the business and personal use as represented in the previously approved confidential memorandum, all of the sudden were primarily used for private purposes only – naturally, leaving the buyer to question the validity of the entire marketing prospectus and engaging into a fight about whether the vehicles should be included into the transaction price or not. If one now considers the fact that the vehicle value of $35,000 is less than 1% of the transaction value, then clearly it’s a matter of greed more so than rational thinking.

On other occasions, sloppy work in the initial data gathering process leads to the wrong outcome.

For example, a seller vastly understated the value of the working capital (WC) the business required to operate, specifically, the inventory – whether this was done on purpose or unintentionally remains unclear. Needless to say, the seller expected a significant WC credit adjustment at closing, once the true (higher) WC balance was identified by the buyer. However, the buyer flatly refused any adjustment on the basis that such (higher) level of working capital was historically used to operate the business and working capital was incorrectly represented in the confidential memorandum. (Both parties proceed with the deal by including the higher WC at no extra cost).

In sum, it’s the ‘last minute’ greed that often comes into play and standing in the way of a deal.

Whether, it’s a vehicle a seller wants to keep, a closing adjustment sought or the buyer’s expectation for the acceptance of “the final and best offer”, all set the stage for a deal to break down and viewed objectively, are in no reasonable relationship to deal size, or more importantly, let either party reach their overall objectives.

Rather, on the sell-side, the business owner should “stick to his guns”, clearly define what’s included in the asking price, be at peace with such asking price and set an absolute lowest price to be accepted, but refrain from ‘nickel and diming’ to improve a deal on the back end.

In reverse, a buyer should avoid ‘low balling’ an offer in hopes to ‘get away with it’. No question, it’s fair to obtain the best deal, however, it’s counterproductive to ignore a previously established Fair Market Valuation by an accredited, third party business valuation firm, ‘poisoning the well’ in the process and ultimately not reach one’s own objectives.

Let cooler minds prevail over greed by both parties!

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About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business broker 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 base 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 Info@NeumannAssociates.com

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 info@neumannassociates.com

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Client Testimonials

“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.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

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.”

Douglas DiCeglio

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

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

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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