The Founder Who... Only Had One Buyer
An unsolicited offer can be flattering, especially when the headline number sounds attractive. But without another buyer in the conversation, founders may have little leverage over the price, payment structure, or other important terms. A seemingly strong offer can look very different once earn-outs, seller notes, and escrow are taken into account. In this video, Kirk Michie explains why one buyer is rarely enough to produce the best possible outcome.
Why One Buyer Is Not Enough When Selling Your Business
When a founder receives an unsolicited offer to buy a business, the headline valuation may sound compelling. But that number rarely tells the whole story.
Earn-outs, seller notes, escrow requirements, financing priorities, and other deal terms can significantly reduce the cash a seller receives at closing. Without another interested buyer, the founder may also have little leverage to negotiate a better price or a more favorable structure.
In this video, M&A advisor Kirk Michie explains why having only one buyer can leave a founder with no meaningful negotiating leverage—and why a $20 million offer may not really be worth $20 million.
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An Offer Is More Than Its Headline Price
Founders often focus first on the total purchase price. That is understandable, but the headline number is only one part of the offer.
A buyer might describe its proposal as a $20 million deal while dividing that amount among several forms of payment:
Cash paid when the transaction closes
An earn-out tied to future financial performance
A seller note paid over time
Money held in escrow for potential liabilities
Equity retained or reinvested in the acquired business
Each component carries a different level of timing, risk, and certainty. Two offers with the same stated valuation can therefore produce very different outcomes for the seller.
The more useful question is not simply, “What is the offer?” It is, “How much will I receive at closing, and what must happen before I receive the rest?”
How a $20 Million Offer Can Become $9 Million at Closing
Kirk illustrates this distinction with a hypothetical $20 million offer.
Suppose $6 million of the purchase price is structured as an earn-out. The founder will receive that money only if the business reaches certain revenue, EBITDA, or margin targets after closing.
Another $4 million might be issued as a seller note. That note may pay no interest for the first two years and may not mature until the buyer sells the company again. It could also sit behind the buyer’s senior lender, secondary lender, or preferred equity in the payment hierarchy.
That leaves $10 million designated as cash at closing. If another $500,000 to $1 million is placed in escrow to cover potential claims, the founder may receive only $9 million to $9.5 million when the transaction closes.
The remainder is delayed, conditional, or exposed to additional risk.
That does not automatically make the offer unacceptable. Earn-outs, seller financing, and escrow arrangements all have legitimate uses. But founders need to understand what each dollar is worth, when it may be paid, and what could prevent them from receiving it.
Key Deal Terms Founders Should Understand
Earn-Out
An earn-out makes part of the purchase price dependent on the company’s performance after closing. The payment may be tied to revenue, EBITDA, profit margins, customer retention, or other agreed-upon targets.
Founders should understand how those targets are calculated and how much control they will retain over the business. A target may become harder to reach if the buyer changes pricing, staffing, expenses, strategy, or accounting practices after the acquisition.
Seller Note
With a seller note, the founder effectively finances part of the acquisition by accepting payment over time.
The note’s interest rate, maturity date, repayment schedule, collateral, and position relative to other lenders all matter. A $4 million seller note is not equivalent to receiving $4 million in cash at closing, especially if repayment is delayed or subordinate to the buyer’s other obligations.
Escrow
An escrow holds back a portion of the purchase price for a specified period. The money may be used to satisfy claims involving representations, warranties, working capital, taxes, or other potential liabilities.
The size of the escrow, the release schedule, and the conditions under which the buyer can make a claim should all be evaluated. In some transactions, representations and warranties insurance may help reduce the amount the seller must leave in escrow.
Retained or Rollover Equity
Instead of accepting an earn-out, a founder may choose to retain or reinvest equity in the business. This can provide an opportunity to participate in future growth and potentially receive a “second bite of the apple” if the buyer later sells the company at a higher valuation.
Rollover equity still carries risk, however. Its value depends on the future performance of the company, the buyer’s strategy, the rights attached to the founder’s ownership, and the terms of a future sale.
Why Multiple Buyers Change the Conversation
No buyer has an incentive to voluntarily offer the highest possible price and the most seller-friendly terms when it knows it is the only option.
The presence of other credible buyers can create competitive tension. That competition may improve the valuation, but it can also change how the purchase price is structured.
For example, competition could help a founder negotiate:
More cash at closing
A smaller or shorter escrow
Less dependence on an earn-out
Better seller-note terms
More favorable rollover-equity rights
Greater flexibility around the founder’s role after closing
In Kirk’s example, a $20 million offer could potentially be restructured to provide $15 million—or 75% of the purchase price—in cash at closing, with a smaller escrow and less conditional consideration.
The goal is not necessarily to run a wide auction or invite every possible buyer into the process. Some buyers will not participate in a formal auction. But identifying two or three serious alternatives can give a transaction advisor meaningful leverage when negotiating price, structure, and risk.
What to Do After Receiving an Unsolicited Offer
An email or phone call from a private equity group, family office, search fund, or strategic buyer can be the beginning of a valuable opportunity. It should not automatically become the end of the founder’s search for alternatives.
Before signing a letter of intent, founders should consider taking several steps:
Separate the headline price from the expected proceeds. Calculate the cash due at closing and identify every amount that is delayed, conditional, financed, or held back.
Examine the assumptions behind the valuation. Determine which earnings period, EBITDA calculation, adjustments, and growth expectations the buyer used.
Review the complete structure. Understand the earn-out, seller note, escrow, rollover equity, working-capital requirements, and any other material terms.
Assess the buyer. Price matters, but so do the buyer’s financing, reputation, operating approach, decision-making process, and plans for the company.
Prepare the company’s financial information. Clear, professional financials can make the business easier to evaluate and help support its valuation.
Consider other qualified buyers. A focused market check can reveal whether the original offer reflects the market or simply reflects what one buyer hopes to pay.
Assemble the right advisory team. An M&A attorney, accountant, and experienced broker or transaction advisor each brings a different perspective to the process.
When to Hire a Broker or Transaction Advisor
Founders sometimes wait until after signing a letter of intent to seek meaningful transaction advice. By that point, the buyer may already have exclusivity, and many of the most important economic terms may have been established.
A broker or transaction advisor can be especially valuable before the founder agrees to exclusivity. The advisor can help evaluate the valuation, compare potential buyers, prepare materials, improve financial presentation, identify structural risks, and negotiate the overall economics of the transaction.
This is an important part of business exit planning. The objective is not simply to find someone willing to buy the company. It is to determine whether the offer supports the founder’s financial goals, personal priorities, desired timeline, and plans for the business after closing.
Before You Accept the Only Offer
A single offer may be attractive, but it does not prove that the founder has received full market value—or the best available terms.
Founders should understand how much cash they will receive at closing, how much of the price remains at risk, and whether credible alternatives could produce a better outcome. The right preparation and advice can help prevent an owner from selling too soon, too low, under the wrong terms, or to the wrong buyer.
If you have received a letter of intent, indication of interest, unsolicited email, or direct approach from a potential buyer, Candor Advisors can help you evaluate what is actually being offered.
Talk to Kirk for an objective conversation about your offer, the proposed valuation, and whether additional guidance or market competition could improve your outcome.
