Inspired Stories - Why Most Founders Get Outnegotiated in M&A Deals
Selling a business is usually the largest financial event in a founder’s life, but most entrepreneurs enter the process with far less transaction experience than the buyers across the table. In this episode of the Inspired Stories podcast, Kirk Michie shares practical lessons from more than 30 years in finance, private equity, and M&A advisory. The conversation covers EBITDA, valuation, private equity deal tactics, earn-outs, founder preparation, and why many owners lose leverage before they realize it.
Why Founders Often Enter M&A Deals at a Disadvantage
One of the strongest themes in the discussion is the imbalance between buyers and sellers during an acquisition process. Kirk describes sophisticated buyers as “full-time predators” while founders are often “part-time prey.” Most entrepreneurs will only sell a company once, while buyers evaluate deals constantly. That experience gap shapes almost every part of the transaction.
Private equity firms and strategic buyers spend their time reviewing financials, modeling outcomes, structuring transactions, and negotiating purchase agreements. Many founders, on the other hand, are still running day-to-day operations while trying to learn the M&A process in real time. Even highly successful operators may not fully understand how buyers evaluate risk, value recurring revenue, or structure contingent payments.
That difference in experience becomes especially important once negotiations begin. Many founders focus heavily on valuation while paying less attention to terms. Kirk explains that sophisticated buyers often use deal structure to reduce their own risk while keeping sellers financially tied to future performance.
EBITDA Is Still the Core Driver of Most Deals
Throughout the interview, Kirk repeatedly returns to EBITDA and transferable cash flow as the foundation of most lower middle market transactions.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. In practical terms, buyers use it to estimate the ongoing earning power of the business independent of financing decisions or accounting adjustments.
But buyers rarely stop at the accounting definition alone. They also normalize the business by adjusting for owner expenses, one-time costs, compensation differences, and operational irregularities. The goal is to determine what the company would realistically produce under professional ownership.
Many founders assume buyers will pay for future ideas or untapped opportunity. In reality, buyers usually pay for proven economics. A founder may believe the company could double in size over the next few years, but unless there is clear evidence supporting that trajectory, the buyer typically values the company based on trailing performance.
Kirk also points out that not all revenue streams receive the same valuation treatment. Businesses with recurring revenue, stable margins, diversified customers, and reduced owner dependence often command significantly higher multiples than companies with inconsistent earnings or highly transactional revenue.
The Hidden Risk Inside Earn-Outs and Seller Notes
One of the most practical sections of the conversation focuses on deal structure.
Kirk explains that founders often celebrate the headline valuation without fully understanding how much of the purchase price may be conditional. A business may technically sell for an attractive multiple, but only part of the proceeds may arrive at closing.
The remainder could be tied to:
Earn-outs based on future growth
Seller notes paid over time
Rolled equity into the buyer’s platform
Performance-based milestones
This matters because leverage changes after the deal closes.
Once the buyer controls the business, they often control budgeting decisions, operational spending, reporting standards, and future growth investments. That can directly impact whether the seller ultimately receives deferred payments.
Kirk references conversations with experienced M&A attorneys who estimate that earn-outs frequently fail to pay sellers exactly as originally expected. Sometimes the issue is performance. Other times, it is simply a change in incentives once ownership transfers.
The broader point is not that all earn-outs are bad. Some rolled equity structures can create meaningful upside when aligned with the right buyer. The problem is that many founders enter these agreements without fully understanding the risks attached to contingent proceeds.
Why Exit Preparation Should Start Years Earlier
A major takeaway from the episode is that strong exits are usually built long before a business formally goes to market.
According to Kirk, Candor Advisors often works with founders three to five years ahead of a transaction. During that time, the focus is less about marketing the company and more about improving trajectory.
That process may involve:
Increasing EBITDA
Improving financial reporting
Reducing owner dependency
Building recurring revenue streams
Clarifying growth positioning
Expanding higher-multiple service lines
Kirk gives the example of businesses that contain both low-multiple and high-multiple divisions. In those situations, buyers may place significantly greater value on the faster-growing or more scalable portion of the business. Founders who understand that dynamic early enough can intentionally reposition the company before going to market.
He also emphasizes that not every founder should sell immediately. In some cases, waiting several years and improving the business can dramatically increase both valuation and negotiating leverage.
The Best Buyer Is Not Always the Highest Bidder
Another important theme from the conversation is buyer alignment.
Many founders assume the highest valuation automatically represents the best deal. Kirk argues that this is often too simplistic, especially when rolled equity or future involvement is part of the transaction.
A strong buyer should also align with:
The founder’s long-term goals
Employee continuity
Legacy concerns
Operational philosophy
Risk tolerance
Kirk encourages founders to evaluate buyers the same way investors evaluate fund managers. That means looking beyond presentations and asking difficult questions about prior outcomes, track records, and relationships with former sellers.
According to him, founders should not hesitate to request conversations with other entrepreneurs who previously sold businesses to the same buyer. Those conversations often reveal far more about the partnership dynamic than formal pitch materials ever will.
How Candor Advisors Approaches Founder-Led Transactions
Throughout the interview, Kirk repeatedly returns to one core principle: helping founders reach better outcomes.
That includes helping owners prepare years in advance, building competitive tension among buyers, improving leverage during negotiations, and educating founders about how sophisticated buyers actually think.
It also means advising some founders not to sell when the timing or structure is wrong.
That approach reflects how Candor Advisors positions itself within the lower middle market M&A space. Rather than focusing strictly on closing transactions, the firm emphasizes preparation, education, and long-term alignment between founders and buyers.
For many business owners, the biggest lesson from this conversation may be simple: the earlier you prepare for an exit, the more control you usually have once negotiations begin.
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