Just went through exactly this and managed somehow to muster the courage (or insanity, time will tell) of walking away. The last straw for me was when we flew to their offices to nail down the final deal and the price was still decreasing, decreasing. They couldn't help themselves from trying to squeeze every last dollar out of the deal, and putting more and more of the upside behind earn-outs and future growth. By the time it was 'here's our actual final offer' it was barely a P/E of 5 on current year earnings when YoY we were growing a triple digit percentage.
Sometimes the lack of liquidity can get to you. Funneling every last cent of profit back into growth is a crucible. The offer of taking a rest at 20 miles is the perfect analogy. The level of distraction in trying to close the deal is immense. And how, after so much pain, can you really make an objective decision to walk away at the 11th hour?
This all ties right back into the liquidity discussion a few weeks back. I have no interest in taking payroll and seeing less than half after taxes. So finding a fund interesting in purchasing a fractional interest of Common Shares (no preferences) at FMV (versus investment value the VCs pay) is a really great bridge past the CorpDev route.
> it was barely a P/E of 5 on current year earnings when YoY we were growing a triple digit percentage.
I'm kinda curious: Did you point that out as clearly as the line above? along with something to the effect of "If you think this number is close to the value we'd take, then we're wasting each other's time"?
Well, I think what we said was, "The price is just not compelling, perhaps the time just isn't right. We want to keep growing this and lets talk again in a couple years." But hopefully the meaning was not lost in translation.
Perhaps part of the problem is that it was the wrong partner who didn't value the technology nearly enough, and was too focused on discounted cash flows with an absurd discount rate, and too conservative a growth allowance. They passed that off as "their model" which couldn't be touched. Add in the fact they weren't even paying up-front but where much of the value was earn-outs with lofty targets, including a minimum 20% net operating profit... somehow they didn't see we could earn just as much, if not more, by keeping all the equity and just keep working for ourselves. It would have been this weird "half-exit" where all the upside was still in front of us. No thanks!
> somehow they didn't see we could earn just as much, if not more, by keeping all the equity and just keep working for ourselves
Yes, that was exactly the message that I was hoping you delivered with a sledgehammer, because I would have guessed that their reaction would be telling.
Anyway, kudos to you and your team for making (imho) the right call.
Sometimes the lack of liquidity can get to you. Funneling every last cent of profit back into growth is a crucible. The offer of taking a rest at 20 miles is the perfect analogy. The level of distraction in trying to close the deal is immense. And how, after so much pain, can you really make an objective decision to walk away at the 11th hour?
This all ties right back into the liquidity discussion a few weeks back. I have no interest in taking payroll and seeing less than half after taxes. So finding a fund interesting in purchasing a fractional interest of Common Shares (no preferences) at FMV (versus investment value the VCs pay) is a really great bridge past the CorpDev route.