Buy-Side M&A Masterclass Part 2 | How to Value a Business and Make a Smart Offer

Buy-Side M&A Masterclass Part 2: How to Source, Value, and Make an Offer on a Business

In this installment of the Buy-Side M&A Masterclass series, investment banker and negotiation expert Paul Giannamore walks through the complete front-end acquisition process — from sourcing a target and building rapport with the seller, to valuing the business and crafting a letter of intent. Using a detailed case study of a buyer named Mark pursuing a hospitality software company owned by a founder named Jimmy, Paul reveals the psychology, strategy, and real-world tactics that separate sophisticated acquirers from the rest.

Why Relationship-Building Beats Financial Modeling in Buy-Side M&A

Most buyers over-invest in technical skills — valuation models, financial accounting, due diligence checklists — and under-invest in the one thing that often determines whether a deal gets done: the relationship with the seller. Paul argues that a buyer who can’t build rapport with a seller will either lose the deal entirely or overpay for it. Mark’s two-hour lunch with Jimmy, which appeared to cover almost nothing of substance, was in fact a masterclass in eliciting information, building trust, and positioning himself as the only buyer worth considering. He arrived in jeans, focused entirely on Jimmy’s story, and left without interrogating a single line item on the P&L.

How to Source Acquisition Targets the Right Way

Rather than blasting emails to hundreds of companies, Mark identified a short list of five to six software businesses in his vertical, tiered them by strategic fit, and sent each owner a highly personalized, research-driven letter via FedEx. He referenced the company’s specific hotel accounts, industry awards, and history — making it impossible for Jimmy to dismiss it as a form letter. Paul emphasizes that proprietary outreach like this is the only reliable path to deals at reasonable valuations. Competitive auction processes, by design, drive prices to the ceiling.

Valuing a Business Without Getting Distracted by Comparable Transactions

Paul makes a contrarian case against anchoring to market comps. In an era where private equity is bidding up businesses to 12–15x EBITDA, comparing yourself to those buyers is discouraging at best and financially reckless at worst. Instead, Mark focused exclusively on what the business was worth to him on a standalone basis — using simple “bro math” to determine that $10 million (5x EBITDA on $2 million in annual cash flow) was a slam dunk, and that he could stretch to $12–13 million with the right deal structure. The goal is to identify your floor, your ceiling, and your opening offer before you ever sit down with the seller.

Understanding Seller Psychology Before You Make an Offer

Before drafting his LOI, Mark invested two hours understanding what Jimmy actually wanted from a sale — not just financially, but emotionally. He learned that Jimmy was burned out, that his wife had been asking for a lake home for a decade, that he was a new grandfather, and that he was a conservative investor comfortable with US Treasuries. All of this shaped how Mark structured his offer: $5 million in cash (enough to cover taxes and the lake house) and $5 million in a seller note at a rate Jimmy would find acceptable. Paul’s core point: you cannot craft a compelling offer without first understanding the seller’s goals, fears, and financial situation.

How to Structure and Present a Letter of Intent

Paul breaks down the difference between an indication of interest (a brief, range-based expression of interest) and a letter of intent or term sheet (a more detailed document outlining the actual deal terms). For first-time sellers like Jimmy, Mark deliberately wrote his LOI in plain English — minimal legalese, clear rationale, and a straightforward purchase price. Paul strongly advises buyers, especially newer ones, to go long on the LOI: spell out indemnification provisions, rep and warranty survival periods, and deal structure up front. Leaving terms silent doesn’t give you flexibility — it makes unsophisticated sellers feel deceived when those terms surface later in the purchase agreement.

Positional Bargaining and How to Handle the Counteroffer

When Mark offered $8 million and Jimmy countered at $15 million with noticeable hesitation, Mark recognized a classic positional bargaining dynamic. Rather than grinding through incremental concessions, he moved directly to his target price of $10 million — split evenly between cash and a seller note — and held firm. He had correctly assessed that Jimmy had no other buyers, no M&A advisor, and a genuine desire to sell. Paul emphasizes two rules: always give yourself room to move, and always set your walk-away price before negotiations begin. Incrementalism is the silent deal killer that causes buyers to rationalize prices they never would have accepted with a clear head.

Watching Actions, Not Just Words

One of Paul’s most practical lessons in the episode: pay as much attention to how sellers behave as to what they say. A seller who claims to be “not that interested” but contacts you every 48 hours for a status update is telling you exactly how interested they actually are. Conversely, a seller who says the same thing and then goes quiet is far more credible. The same logic applies to claims of competing buyers — nearly every seller implies they have other offers, but their behavior almost always tells the true story.

The Danger of Unqualified Advisors on Either Side of the Deal

Jimmy made a common mistake: he turned to his general practice attorney — a man who handles wills, real estate, and retirement plans — for M&A guidance. That attorney introduced unnecessary friction by insisting on earnest money deposits (standard in real estate, not in middle-market M&A) and raising concerns that made Jimmy question Mark’s motives. Paul’s advice to buyers: if your seller is working with a generalist attorney who is mischaracterizing standard deal terms, gently suggest they seek a second opinion from an M&A-focused lawyer. It protects the deal and protects the relationship.

Key Takeaways for Buy-Side M&A

This episode distills years of deal-making experience into a practical framework for business owners and corporate development professionals pursuing proprietary acquisitions. The most important lessons: define your acquisition thesis clearly before you start, differentiate your outreach so sellers take you seriously, value the business on your own terms rather than chasing market comps, invest heavily in the seller relationship before and after you make an offer, and write an LOI that is specific enough to prevent misunderstandings from derailing a deal that both parties want to close.

Future installments of the Buy-Side M&A Masterclass series will cover financial and accounting due diligence, drafting and negotiating the definitive purchase agreement, and deal structuring considerations including asset versus stock transactions.

Frequently Asked Questions

What is buy-side M&A?

Buy-side M&A refers to the process of acquiring another business. It involves identifying and sourcing acquisition targets, building a relationship with the seller, valuing the business, structuring an offer, and negotiating through to a signed purchase agreement. Unlike sell-side M&A — where an advisor represents the business being sold — the buy side focuses on the acquirer’s strategy, diligence, and deal execution.

How do you find acquisition targets without using an investment bank?

The most effective way to find proprietary acquisition targets is through direct, personalized outreach. Rather than sending generic emails, sophisticated buyers research their target list in advance — understanding the company’s history, key people, customers, and accolades — and reach out via a handwritten letter or FedEx package. This approach stands out in a sea of broker emails and significantly increases the likelihood of getting a response from an owner who is not actively looking to sell.

How should a buyer value a small or mid-sized business?

For most buyers pursuing proprietary deals, the most practical approach is to value the business based on what it is worth to you on a standalone basis — not on what comparable transactions suggest. Start with true cash flow (EBITDA adjusted for working capital and capital expenditure requirements), then determine a multiple that reflects an acceptable return given your risk. Paying mid-single-digit multiples of EBITDA is the goal for value-creating acquisitions. Anchoring to market comps — where private equity often pays 12–15x EBITDA — sets unrealistic expectations and can cause buyers to overpay.

What is a letter of intent (LOI) in M&A?

A letter of intent (LOI), also called a term sheet, is a non-binding document that outlines the proposed terms of an acquisition before a definitive purchase agreement is drafted. It typically covers the purchase price, deal structure, exclusivity period, and key conditions. Under US common law, an LOI is generally non-binding when stated as such, but it serves as the framework for the purchase agreement that follows. Buyers should draft LOIs that are specific and detailed — especially when dealing with first-time sellers — to avoid disputes later in the process.

What is the difference between an indication of interest and a letter of intent?

An indication of interest (IOI) is a brief, often one-page document that expresses a buyer’s interest in acquiring a business, typically with a valuation range rather than a specific price. It is commonly used in formal, competitive sell-side processes where multiple buyers submit early-stage bids. A letter of intent (LOI) is more detailed, includes a specific proposed purchase price and deal structure, and is used when a buyer has a direct line to the seller and is ready to move toward exclusivity and due diligence.

Should a buyer make the first offer or wait for the seller to name a price?

When the buyer has more experience with valuation than the seller — which is common in direct, one-on-one deals — the buyer should make the first offer. Waiting for the seller to name a price risks anchoring negotiations at an inflated number that is difficult to negotiate down. By making the first offer, the buyer sets the anchor and avoids the psychological disadvantage of responding to a seller’s potentially unrealistic price expectation.

What is a seller note and why does it matter in a deal structure?

A seller note is a form of financing in which the seller agrees to receive a portion of the purchase price over time, effectively acting as a lender to the buyer. This allows the buyer to close the deal with less upfront capital while giving the seller a return on the deferred amount. Seller notes are most effective when the buyer understands the seller’s financial situation and risk tolerance. A seller who is conservative with money and comfortable with steady returns — such as one who holds US Treasuries — is a strong candidate to accept a seller note as part of the deal structure.

What is positional bargaining in M&A negotiations?

Positional bargaining is a negotiation style in which each party states a position — typically a price — and both sides make concessions until they reach an agreement. In direct business acquisitions, this often looks like a buyer offering a low price, the seller countering high, and the two parties working toward a middle ground. Experienced buyers set their target price and maximum price before negotiations begin, giving themselves room to make concessions without exceeding the point at which the deal no longer makes financial sense.

What is incrementalism in M&A and why is it dangerous for buyers?

Incrementalism in M&A is the psychological phenomenon in which a buyer gradually raises their offer in small steps until they have paid far more than they originally intended. Each individual concession feels minor, but the cumulative effect can push the purchase price well beyond what makes financial sense. Buyers can protect against incrementalism by setting a firm walk-away price before negotiations begin and committing to it regardless of how close the gap becomes near the end of a negotiation.

How important is the seller relationship in a direct acquisition?

The seller relationship is often more important than any technical skill in a direct, one-on-one acquisition. A buyer who builds genuine trust and rapport with a seller can keep that seller from seeking out competing buyers, make difficult negotiations easier to navigate, and even motivate a seller to accept a lower price in exchange for doing a deal with someone they like and trust. Sellers — especially founders — are deeply emotionally attached to their businesses, and a buyer who respects and understands that attachment has a significant advantage over one who leads with credentials and financial analysis.

Do you need earnest money or a deposit when making an offer to buy a business?

In most middle-market business acquisitions in the United States, earnest money deposits are not customary at the letter of intent stage. Unlike real estate transactions, where deposits are standard, M&A deals typically rely on the buyer’s commitment of time, money, and resources during the due diligence period as evidence of serious intent. Requiring or expecting a deposit at the LOI stage is a common mistake made by general practice attorneys who are unfamiliar with M&A transaction norms.

Why is it important to have an M&A attorney instead of a general practice lawyer?

M&A transactions involve highly specialized legal and financial terms that general practice attorneys are often not equipped to evaluate. A lawyer who primarily handles real estate, wills, or small business matters may mischaracterize standard M&A practices — such as the absence of earnest money deposits or the structure of indemnification provisions — and inadvertently create mistrust between buyer and seller. Both buyers and sellers benefit from working with attorneys who have direct experience closing business acquisitions of similar size and complexity.