In the UK, valuations of companies (in particular small- and mid-cap companies) have been so low for years that we have seen a boom in takeovers from international companies and private equity firms.
Whilst the gist of the research is accurate, and good negotiations can improve an initial offer for a buyer, there are still many pitfalls between initial offer and the price ultimately paid. For smaller entities, two things tend to happen;
1. Shortly before the altar, the buyer significantly reduces their offer in a surprise move. This is made on a 'take it or leave it' basis, at which point the exclusive due diligence phase has left other prospective acquirers behind. It takes some nerve to walk away from the wedding. It would be very interesting to see if the researchers found out what proportion of deals were 'knocked' at the last minute.
2. Most unlisted transactions will contain performance clauses, so the buyer can be certain that promises and warranties will be made good. Inevitably sales or other financial forecasts were over-optimistic, a client cancels a project, or a key employee misses their autonomy and moves (is lured) away before their earn out period. This will reduce the overall transaction payment.
Whilst the gist of the research is accurate, and good negotiations can improve an initial offer for a buyer, there are still many pitfalls between initial offer and the price ultimately paid. For smaller entities, two things tend to happen;
1. Shortly before the altar, the buyer significantly reduces their offer in a surprise move. This is made on a 'take it or leave it' basis, at which point the exclusive due diligence phase has left other prospective acquirers behind. It takes some nerve to walk away from the wedding. It would be very interesting to see if the researchers found out what proportion of deals were 'knocked' at the last minute.
2. Most unlisted transactions will contain performance clauses, so the buyer can be certain that promises and warranties will be made good. Inevitably sales or other financial forecasts were over-optimistic, a client cancels a project, or a key employee misses their autonomy and moves (is lured) away before their earn out period. This will reduce the overall transaction payment.