Negotiating the Sale of a Management Company

Posted by Jeff Hardy on January 13, 2017

It's a Process

Negotiating the sale of a management company is a very delicate operation. Buyers and sellers will always be at odds because their interests are first and foremost profit/loss driven:  the Buyer wants to pay the least amount possible, while the Seller wants to get the highest price possible. This often results in a lengthy back and forth process of offer and counter-offer.

Much like buying a car, you have to have a good poker face to get the best deal, regardless of which side of the deal you represent. If a Seller seems anxious to sell, the Buyer will open with a low offer. If a Buyer seems too eager, the Seller will open with a high proposition. To get the best deal, each party must have reasonable expectations and establish a reasonable sale price range in which a deal can be made. And at the end of the day, either party has to be prepared to walk away from the deal if a reasonable sale price cannot be agreed upon. This is a business transaction, so the decision-making process must be free of emotion.

There is More at Stake than Profit

A bad deal can endanger both parties and threatens the survival of the management company at stake, so a fair sale price is essential to the success of a deal. If the sale price for a company is unreasonably high, the Buyer may end up defaulting on the monies owed to the Seller, causing a legal conflict between the parties. If the sale price is too low, the Seller may refuse to assist the Buyer in the transition and undermine the success of the deal. Therefore, a price that both parties can agree is fair is the best scenario for the success of the deal post-transaction. For help arriving at that fair price, see our previous article, "How Much is my CAM Management Company Really Worth?" However, if the value of the management company cannot be agreed upon by the Buyer and Seller, then both parties should consider using a professional Business Appraiser to help arrive at a fair sale price.

Pricing is Only Half the Battle

Of course, there are a multitude of other factors beyond monetary agreements that must be taken into consideration during the sale of a management company, such as provisions for non-competition, non-disclosure, and indemnity, as well as for the Seller to be retained during the transition of the company for a period of time (typically six months, but the longer the better).

It is also worth noting that both parties will need legal representation to finalize a sale agreement. But, in my experience buying two management companies in the past, it is best to negotiate the major terms like price, payment terms and Seller holdover period first. Then, when an agreement is reached on those major items, consult attorneys to finalize a legal sale agreement.

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