Owners comparing two offers almost always start with the bigger number. Often that is the right place to start, but it is a poor place to stop. The composite below is built from a situation that comes up regularly in sales of companies this size, with names, industry details and figures left out and the mechanics kept accurate. The owner took the lower offer, and it was the better deal.
1. Two letters, two very different buyers
The company was a regional manufacturer, profitable and steady, owned by a founder in his late sixties with no family member waiting to take over. A sale process drew several interested buyers, and two of them sent letters of intent.
The first came from a private equity group. It carried the higher headline price. Part of it was cash at closing, a meaningful share was an earnout tied to the company's earnings over the next three years, and the founder was asked to roll a minority stake into the new company and stay on as president for two years.
The second came from a regional competitor. The headline was lower. Most of it was paid in cash at closing, with a small seller note, and the founder would stay for six months to introduce customers and hand over the work.
2. Reading what each price was made of
The useful exercise was to put both offers on one page and break each price into four lines: cash at closing, money paid later, what that later money depended on, and who would control those conditions.
That page changed the comparison. The earnout would be measured on earnings of a company the founder no longer owned, run under a new owner's plan, with new costs and possibly an add-on acquisition folded in. Earnouts can pay in full, but how earnings are defined, what costs count and who decides how the business is run all affect what gets paid. The rolled equity carried real upside, but it could not be sold until the fund sold the company, on the fund's timetable. Counting only the money that was close to certain, the gap between the two offers was much narrower than the headlines suggested.
3. How sure was each buyer to close?
The second question was which buyer was more likely to get to the closing table on the terms in the letter. The private equity group needed acquisition financing and would commission its own quality of earnings review, both of which take time and can turn up reasons to revisit the price. That is normal, and many private equity buyers close reliably. The competitor already knew the industry, the customers and the equipment, had its financing lined up, and planned a shorter diligence process. Neither buyer was a sure thing, but one had fewer steps between signing and closing.
4. What the owner wanted after the sale
The deciding question had nothing to do with either buyer. The founder wanted to be done. Two years as president, reporting to a board and working to hit an earnout target under someone else's plan, was not the life he wanted, and he said so. Six months of handover was. He also cared about his long-time employees, and the competitor wanted the plant and the people because it was short on capacity.
For a younger owner who wanted to keep running the business and take a second payday when the fund sold, the private equity offer could well have been the better deal. The right offer depends on the seller as much as on the buyer.
The takeaway
A headline price is where the comparison starts. What decides it is how much you receive at closing, how much depends on things you will no longer control, how likely the buyer is to close on the terms in the letter, and what you have agreed to do afterward to collect the rest. Owners who compare offers on those terms, and who are honest with themselves about the years after the sale, choose better than owners who compare headlines.
