The Question Nobody Was Paid to Answer (Part 2)

Stage Three: I Want to Evaluate Offers

Angela gets three indications of interest. Two are low enough that her broker tells her not to bother. The third is in range, and for about six weeks Angela is genuinely excited.

Then the party stops returning calls.

After that, nothing. Four months of nothing.

She asks her broker what happened. The market is choppy. These things take time. She asks whether there is something about the business. Every business has hair on it.

That is the entire diagnosis she receives.

Angela has paid a retainer. She has spent nine months assembling a data room at night after doing her actual job. Real buyers have now seen the company, and the market's answer comes back as silence.

What she does not know is that the concentration was visible on page four. Three general contractors. Sixty percent of revenue. No contracts. A buyer can see that in ninety seconds.

Nobody calls Angela to explain why they passed because nobody owes her a postmortem. Her silence is information. It just did not arrive in a form she can use.

Marty gets a different kind of nothing.

Five months on the marketplace. Eleven inquiries. Most are people who have never owned anything and want to know whether he will carry the paper. One is a competitor from two counties over who Marty suspects mostly wanted to see his numbers. One is a search fund kid who asks decent questions for twenty minutes and disappears.

Marty pulls the listing.

For the next two years, he carries around the conclusion that nobody wanted the business.

Except Marty was never really in front of the buyer universe. The firms that buy commercial mechanical contractors, the platforms rolling up trades, the strategics filling geographic holes, generally do not shop marketplace listings the way somebody shops houses. They get called. Somebody works a list.

Angela's silence was a market response. Real buyers looked and declined.

Marty's silence was a distribution failure. The market was barely asked.

Two owners heard the same thing: nobody wants this.

Only one of them actually received that information.

Stage Four: I Want to Select an Exclusive Buyer

Dale, Priya, and Curtis all get here. Letters of intent. Paper. A number.

For Dale, it is the best day of the whole process. The number is close to what his second firm told him and close to what Dale had already begun planning his life around. There is another bidder, a regional platform about six percent lower, but Dale barely thinks about them. You do not spend much time staring at the number that lost.

The buyer's number, though, was based largely on the marketing package. The broker wrote the marketing package from the seller's information. Dale has now heard roughly the same valuation from two apparently independent parties, which makes the number feel increasingly real.

That is not a scheme. It is simply how the information chain works.

The LOI says non-binding. It says subject to due diligence and financing. Those are not technicalities. They are the operative terms.

But the number is sitting in the second paragraph, and the number is what the seller experiences.

In exchange for that conditional number, Dale gives the buyer exclusivity. Whatever competitive leverage the process created becomes severely constrained the moment he signs.

The seller experiences that moment as arrival.

Operationally, it is the beginning of the most invasive examination of the company anyone has ever performed.

Stage Five: I Want to Defend the Original Offer

There really was no original offer.

The number in the LOI came from financials and operating information supplied by the seller. The buyer bid on the right to verify what those materials represented. That is what the next sixty to ninety days are for.

Dale's diligence proceeds the way diligence often does. The quality of earnings team rebuilds the numbers from the general ledger. Some personal and non-recurring expenses come out. Other expenses Dale considered one-time go back in because they happened more than once. Cash-to-accrual treatment on WIP moves revenue into different periods.

Nobody is accusing Dale of fraud. The books were designed by a competent accountant to serve a different objective.

His stated earnings come down about eight percent.

Meanwhile, the operational team is asking who prices service renewals, how estimating works when Dale is away, and whether the maintenance agreements can actually be assigned to a new owner. About a third cannot without consent.

They find risk. Not fraud. Not sloppiness. Risk in the plainest possible sense: things the buyer cannot yet establish will survive Dale leaving.

The revised number is eleven percent below the LOI.

And here is Dale's real problem. He cannot independently evaluate the adjustment. He does not know how much of it is simply what his books were always worth and how much reflects aggressive interpretation. He does not know whether the operating-risk reduction is reasonable or whether the buyer believes he will absorb it because he is already locked into the process.

Dale does not have a disagreement about value.

He has no basis for one.

So he does what people do. He calculates eleven percent of a number he has been planning his retirement around since the previous fall. He has spent ninety thousand dollars on lawyers and accountants. He has lived in the data room four days a week since signing the LOI. His service manager and top project manager have both figured out what is happening, and one has already spoken to a competitor.

Dale says no.

But no does not put him back where he started. It puts him back with fewer dollars, one lost year, unsettled employees, and a group of active buyers in his sector who now know a transaction died in diligence.

Then he remembers the regional platform, the one that came in six percent lower. Six percent lower looks different now.

He asks his broker to call them.

He cannot. Dale's no-shop is still running. The deal may be dead, but the exclusivity period is not.

By the time he can call, the platform has closed on another mechanical contractor two states over. Their acquisition capital for the year is committed. They did nothing wrong. A buyer with money to deploy is not going to hold it for a quarter in case somebody else's deal falls apart.

Dale thought he was giving one buyer a protected period to evaluate his company. What he also gave up was the ability to preserve his next-best alternative while that evaluation was happening.

The choice was never simply take less versus keep what I had.

By the time the choice arrived, it was take less versus start over from lower.

Priya's diligence reaches a similar place by a different road.

She had a real process, multiple parties, genuine competition, and an LOI better than she expected. Her advisor earned the fee on distribution.

But the books were never converted because that was part of the eighteen months Priya declined. Her general manager is excellent, but there is not one page describing what he actually does. The QoE brings earnings down nine percent.

Her advisor tells her it is within range. It probably is.

Priya has no independent basis to know.

She is fifty-nine and ten months into a sale process. Starting over is not an abstract option anymore. It means another year of this, possibly more.

That fact is not on the balance sheet. It is nevertheless part of the negotiation.

She takes the adjustment. Then the buyer proposes closing another portion of the gap with an earnout tied to next year's performance. She takes that too.

At some point, the negotiation has stopped feeling like a series of discrete economic decisions. It feels like the difference between finishing and going back.

Curtis gets adjusted too.

That matters.

Preparation did not freeze his price. His number comes back about four percent lower, mostly around working-capital treatment. But his add-backs were documented nineteen months ago. His accrual conversion was completed long enough ago that the trailing twelve months are clean. Estimating has been divided between two people for a year and a half, and the process exists outside Curtis's head.

So when the buyer moves the number, Curtis can see what moved. He pushes back on one item, concedes the other, and it takes a week.

That is the difference.

Curtis did not avoid correction. He knew enough about his own number before anybody else told him one that he could recognize what kind of correction he was looking at.

Priya was not negotiating from the same position. She was partly guessing and partly trusting her advisor because there was nothing else to check the recommendation against.

Priya and Curtis both close. On the industry's scoreboard, both are successful transactions.

And both are.

They are not the same success.

For the rest of the story: Part 3
For the beginning of the story: Part 1