When to take the deal, and when to walk away

Years ago, we worked with a talented entrepreneur in the healthcare industry. She had built a profitable company with nearly two dozen employees. Her business was successful, but after years of carrying the weight of operations, she was exhausted.

She stood at a crossroads.

One option was to hire a general manager, step back from the day-to-day, and continue growing the business. This would take time, and profitability would decline in the short term as she made the necessary investment. But if the strategy worked, she would end up with a more valuable company over the long run.

The other option was to sell.

In the end, she chose to pursue an exit. We launched a comprehensive sale process, approached more than 30 strategic buyers, and generated considerable interest. Several offers came in. Unfortunately, none of the offers gave her the price she had been hoping for.

So she made a difficult decision. She walked away. Instead of accepting an offer that paid her less than what she needed, she returned to the business with a new objective: hire a GM, grow earnings aggressively, and revisit a sale in a few years from a much stronger position.

It was a risk, but one she was willing to take.

Do I accept the offer, or do I walk away?

Entrepreneurs selling their business face this kind of crossroads all the time. It can be incredibly difficult to know what the right move is and, ultimately, it’s a deeply personal decision.

In these moments, it is critical to have enough self-awareness and really step back to evaluate your situation. Most entrepreneurs have a number in their heads for what valuation they want to hit. Maybe it’s $5 million, maybe it’s 10 million, but there is a number. Some amount that would make all the investment they’d put in feel worthwhile.

But this is where you must be pragmatic. In walking away from an offer, you must have some reason to believe you can sell it for a higher price later (almost always this reason is you can grow earnings). Just remember this because, realistically, in any subsequent marketing round, you will be required approach the same parties again. If the business has not grown, then not only will you still not get the price you want, these buyers may provide even lower offers than what you have now.

For these reasons—and as Gavin explains in the video above—ask yourself:

1. Have I run a good process (i.e., there isn’t likely someone out there that is a better buyer than the ones already approached)

2. Am I willing or able to fundamentally change and grow the business so that it is truly worth more in the future?

3. Are there personal financial, health-related, or motivational reasons that mean I must sell now?

When it makes sense to walk away

Many owners believe that if they decline an offer, a substantially better one must exist somewhere else. In our experience, that is often not the case.

Owners also naturally become “proud parents” and believe their company is worth more than anyone else does. This can lead them to reject bids that fairly reflect the market value of their business, anchoring themselves to multiples that don’t apply to their industry or holding out for a number that has no basis in valuation math.

In our experience, it’s reasonable to walk away from a deal if:

• You haven’t completed a thorough sale process and are confident there could be other buyers out there.
• You don’t need to sell today and have the financial flexibility to wait.
• You’re willing and able to invest another few years in the company executing a plausible, high conviction strategy to grow earnings, improve management, or making the business less dependent on you.
• There is some extraordinary macro event or condition that is temporarily stifling buyer appetite, and walking away now will let you sell later into a more favourable environment (for example, halting the sale of a business when the COVID-19 lockdowns were announced).

In these situations, it can be perfectly reasonable to reject an offer—even a good one. If you don’t need an immediate exit, and you genuinely believe there are additional buyers to approach or meaningful value still to be created, investing more time and capital into the business to earn the valuation you want can make sense.

When it makes sense to take the deal

On the other hand, accepting an offer is often the right decision when:

• You’ve run a comprehensive, competitive sale process and multiple buyers have arrived at similar valuations.
• You’re ready to move on, and the personal cost of continuing to run the business outweighs the potential upside of waiting.
• You have better alternative financial opportunities.

In these situations, even if the deal isn’t exactly what you hoped for, the offer reflects a true market price, and it may be better to rip the Band-Aid off and move on.

How do you know what to do?

You have to decide what framework, and what trade-offs, will guide your decision.

The one thing we would advise is to go into the process with as much realism as possible. If you reject an offer, that’s completely fine. Just understand that valuations don’t magically improve over time. To command a meaningfully higher price in the future, you’ll either need to market the business more effectively, or the underlying fundamentals of the business will need to improve.

In reality, if you’ve marketed the business properly and several sophisticated buyers arrive at roughly the same valuation, you’ve likely discovered its current market value.

At that point, the decision becomes less about finding someone willing to pay more today and more about whether you’re willing to spend the next several years building a more valuable company.

Before walking away, recall there is truth in market prices. Just be honest with yourself about your business and where you actually are.