Acquisition Marketplace Review - The Journal of Applied M & A Theory

What Motivates a Seller?

The truly adept buyer is continually attempting to discern what is really motivating the seller to sell. From the moment discussions open with a prospective seller until the transaction is closed, gaining insight into the seller’s real motivations will help you structure an optimal deal, spot opportunities and identify risks or weaknesses that need to be mitigated.

An interesting principle of intelligence gathering is to ignore the stated intentions of your opponent and focus on accessing and addressing your opponent’s actual capabilities. Once the situation is fully assessed, then you can begin to deal with stated intentions. The same principle applies to a seller’s stated reason for selling. The seller may be telling you everything, telling you something, or completely misdirecting you.

When a seller offers his or her reason for selling, accept it as their stated reason, but continue to create your own assessment based upon further discussions with the seller, your observations of the seller, and your understanding of the business. Most everyone wants to cash in, retire or pursue other interests. Ask yourself: “What is happening NOW or about to happen to the business that would make me want to sell too if I owned it?”

A seller’s motivations are shaped and influenced by a variety of “value drivers.” There are two basic types of values: approach and avoidance. Approach values are things that we seek such as liquidity, wealth, and lifestyle. As the term suggests, avoidance values are things we seek to avoid such as the impact of a negative development, problems within the business, general risk, and stress related issues.

A recent survey conducted by PricewaterhouseCoopers provides insight into a seller’s general approach values. Owners of 300 privately-held businesses that were sold or transferred were surveyed. It was found that 79% ranked maximizing financial return as their top succession objective. Seventy-three percent desired to minimize their tax liability followed by protecting the viability of the company (71%), minimizing risk to the selling owner (64%), and protecting employee jobs (44%). The PricewaterhouseCoopers survey indicated that the “most widely cited ‘value driver’ for selling the business was the expected synergies from a sale or merger.” Accordingly, 45% of the owners had a continuing role within the company for an average 4.4 years after the transaction.

In conclusion, continually review your perception of the seller’s motivations. Try to determine the seller’s “approach values” so that you can build upon them to negotiate your best deal. Look into the seller “avoidance values” to more effectively manage risks and avoid unpleasant post-closing surprises. Back to Main

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