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Episode Summary
You’re sitting at your desk. An email lands. Someone wants to buy your company, and the number doesn’t sound crazy. Suddenly you’re not running your business anymore, you’re running a process you’ve never run before, against people who do this for a living. Pat Hobby (my partner, fractional CFO for decades, dozens of M&A deals under his belt) and I sat down because half our clients have gotten one of these calls in the last six months. Owners who weren’t planning to sell are now signing LOIs they don’t understand, hiring estate attorneys to negotiate working capital, and learning what “net proceeds” actually means at the closing table instead of before. We dug into why the PE money is sloshing downstream looking for a home, the gap between intrinsic value and transaction value, and what you should actually do when the call comes. The piece that landed hardest: the owner who has a real five-year plan and a Three-Statement Model doesn’t negotiate. He hands over his non-negotiables, walks away if they don’t fit, and ends up in the 1% of sellers because the buyer realized they were dealing with someone who knew exactly what the business was worth.
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## Top 10 Takeaways- The out-of-the-blue offer isn’t rare anymore. PE money is chasing fewer deals downstream, and you’re the deal.
- Anxiety is the dominant emotion in unsolicited-offer conversations, and anxiety is what gets you taken to the cleaners.
- Intrinsic value is what your cash flows are worth as-is. Transaction value is what they’re worth to a specific buyer with a specific purpose.
- Know why the buyer wants you. Their purpose is your leverage, not your negotiation tactics.
- Before the call, write down your non-negotiables (price, role, employees, location). If they can’t meet them, you don’t talk.
- Headline price is not net proceeds. Subtract debt, partners, taxes, then ask if the deal still works.
- “I get one over on them” is fantasy. Nobody pays $10M for a $5M business by accident.
- Hire the intermediary even if there’s only one buyer. The fee comes back two or three times in terms you didn’t know to ask for.
- The LOI is where the deal is actually negotiated. By the time you sign it, your leverage is gone.
- Working capital is the silent line item where 30% of your purchase price walks out the door if you don’t know what normalized means.
Sound Bites
“It can be anxiety-inducing. I mean, it can send somebody, a business owner, into a real panic to have somebody reach out that they think is a serious offer and not be prepared for it.” (@TBD) — Pat Hobby
“You should be able to pull out a piece of paper and say, here’s what I’m looking for. Here’s what’s important to me. Here are the numbers that I would have to hit. Here are the terms and conditions that are significant to me if you wanna have further conversations.” (@TBD) — Pat Hobby
“The lawyer on the other side said to me, Pat, you guys have an interesting way of negotiating. I said, what’s that? He’s like, you don’t. I’m like, why should we? We told you exactly what we wanted. We were perfectly happy walking away and continuing to run our business the way we’re running it.” (@TBD) — Pat Hobby
“Somebody says, I’ll buy your company for 10 million. They haven’t thought about the fact I’ve got three partners. We have $8 million of debt. I got to pay taxes. They may have put $800,000 in their bank account.” (@TBD) — Pat Hobby
“If I got six hours to cut down a tree, I’d spend the first four sharpening the ax. And the way to sharpen your ax is to sharpen your knowledge.” (@TBD) — Ryan Tansom
About This Episode
Pat Hobby is Ryan’s partner and co-founder at Arkona (the predecessor to Independence by Design™). Pat spent decades as a fractional CFO and was the director of shared services at a local private equity firm, where he helped integrate acquisitions and grow value post-close. He’s been through dozens of M&A deals on both sides of the table (ESOPs, PE recaps, strategic sales) and runs the financial planning and CFO advisory work for the firm. This episode pairs Ryan’s owner-side perspective with Pat’s deal-room perspective on a topic both partners were getting weekly client questions about in 2021.
Resources Mentioned
- Arkona Intentional Growth Digital Course — 36 videos and exercises on how to grow value and prepare for an exit. — arkona.io
- Ep. with Sanjay “Sonny” Vasandani / Sonny Vandenburg on Private Equity — Referenced as a primer on how PE actually works.
- Buy Then Build by Walker Deibel — Referenced for the buy-vs-build acquisition framework.
- Prairie Capital Advisors (Chicago) — Investment banking firm Pat credits for teaching him how critical the LOI negotiation is.
Connections
Phase + Module:
- Module 3 — Owner’s Playbook — Where the non-negotiables, exit options, and pre-decided answers live
- Module 1 — Ownership Goals — What you actually want, financially and non-financially, before the call
Milestones:
- Milestone 4 — Owner’s Value (DCF) — Intrinsic value: what your cash flows are worth before a buyer’s purpose layers on
- Milestone 6 — Transaction Value — What a specific buyer pays based on their purpose for the deal
- Milestone 12 — Five-Year Forecast — The forecast Pat used to confidently walk away from offers
- Milestone 13 — Strategic Plan — Strategy translated into numbers so the projection has weight
Concepts referenced:
- Three-Statement Model — The closed loop that gives the owner a confidence floor
- Enterprise Value vs. Equity Value — The headline price vs. what hits your bank account
- Normalized EBITDA — What a real buyer is actually pricing
- Free Cash Flow — The cash flow buyers underwrite
- Net Debt and Working Capital — The line item where 30% of the deal can disappear
- The Owner-Operator Trap™ — Why most owners walk into the offer with no plan and no leverage
- Value Gap — Distance between what you’d net today and what you actually need