Dealing with Different Price Expectations in Corporate Transactions

Price expectations between buyers and sellers in M&A deals often differ significantly. This is entirely normal, as each party naturally seeks to assert its own interests. The seller aims to achieve the highest possible price to maximize the value of their business. They know their business inside and out and are often emotionally attached to it. This can lead to an overestimation of its value. Conversely, the buyer naturally does not want to overpay. They compare the opportunity with other investment options and pay close attention to risks and potential value appreciation. Information asymmetries also play a role—the seller simply knows their company better than the buyer.

It is important to understand the reasons behind the differing price expectations. Are they based on different assumptions about business development? Do synergies on the buyer’s side come into play that the seller does not see? Often, it helps if both parties openly share their perspectives. Involving neutral third parties such as auditors or M&A advisors can also help bridge the gap. Due diligence plays a crucial role as well. This process thoroughly analyzes opportunities and risks, thereby objectifying the price determination. A foundation for this is the business valuation: determining the fair value using established methods such as discounted cash flow or multiplier approaches.

When both sides make concessions, a compromise is usually found. Variable purchase price components are often used. Part of the price is then paid later, depending on the achievement of certain targets. Earn-outs are also possible, where the sellers remain responsible for the company’s success for a certain period after the sale. This aligns interests. Often, the middle ground roughly corresponds to the previously determined fair business value. But even if it does not— a deal must be worthwhile for both parties. Sometimes it is better not to proceed with a transaction than to be taken advantage of by the negotiating partner. A fair deal is one where both sides can walk away smiling in the end.