In last week’s BVWire, an item titled “Are Certain M&A Targets Being Overvalued?” cited a study that revealed that most private-target M&A deals have problems after the closing, including price adjustments favorable to the buyer. Several readers added their insight into this phenomenon.

“Anyone experienced in business sales usually understands the seller endeavors to maximize sale price and the buyer attempts to protect from overpaying for the entity,” said one reader. “The statistics seem to reflect these differing objectives and not necessarily a bad valuation process.”

Another reader points out this angle: “The problem with post-closing items being in favor of buyers is due to an information and experience imbalance between buyers and sellers,” the reader said. “Most of the time, the acquirers are professional buyers with great skill. A privately held business might be sold once in a lifetime, so we have professional buyers negotiating against novice sellers.”

An astute reader adds: “I've been at M&A sessions where buyers discuss using due diligence and the recourse elements of an asset purchase agreement as standard negotiation techniques,” he said. “So, yes, if you just take the stated purchase price you're probably overvaluing these days. Pratt's Stats is helpful here because it provides full data on contingent payouts and terms. Also, many announced deals fail to close at the last minute because buyers try to negotiate as the lawyers assemble. This is another reason why appraisers need to be very careful not to use announced deal comparables.”

Echoing this notion, another reader adds: “From my experience with deals, this is a common issue, and has always been a great concern of mine when relying on market transactional data."

Our thanks to all readers who commented on this issue.