The Real Reason Some Buyers Pay Double What Others Offer

If you’ve read this newsletter for any length of time, you’ll have heard me make one argument more than any other: the best price usually comes from the buyer no-one else thought to approach. The hidden acquirer. The strategic player from an adjacent sector who realises your business is exactly the piece they’ve been missing.

But there’s a deal we closed recently that turned my own argument on its head — and the lesson from it sharpens the underlying point rather than weakening it.

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The offer that didn’t make sense

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We took a consumer products business to market and ran our usual process. The winning bid came in at more than double the next-best offer. Triple some of the others.

Even by our standards — and we run competitive processes for a living — that kind of spread is rare.

Here’s the part I didn’t expect. That buyer was not some hidden gem we’d dug up from an obscure register. They were not a left-field acquirer from an adjacent sector. They were the most obvious buyer in the world for that business.

If you’d sat me down on day one and asked me who would buy a business like this, they would have been the first name out of my mouth. A globally-known acquirer in exactly the right space, with exactly the right strategic logic. Anyone with a directory and an internet connection could have found them.

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So why did they offer double?

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The real answer to why they offered double anyone else

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They didn’t offer double because of anyone’s relationship with them. They offered double because — like every prospective buyer in our process — they believed they had to put their best foot forward, or they would lose the deal.

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Every signal we sent reinforced that belief. The competitive pressure was real. The other bidders were real. The timeline was real. This was not a process where you submit an opening bid and negotiate down. It was a process where each buyer either led with their best number, or they were going home.

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So they did. And they offered a valuation that they were happy with — strangely enough, I seldom find good acquirers saying they paid too much.

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Here is the principle.

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You are more powerful when the buyer doesn’t know you

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When a buyer knows you well (or your advisor), they feel safe. They feel they understand your business, your motivations, your fallback options. They feel they can manage you. The moment they feel they can manage you, the price starts to come down.

When a buyer doesn’t know you well — but they can see your business is valuable, and they can feel there are other credible buyers in the room — they start to fear losing the deal. They wonder what the others know that they don’t. They put forward numbers that are higher than they would have offered in a casual coffee conversation.

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That fear is what creates the premium. Not relationships. Fear of losing. Put differently, the cost of NOT getting the deal outweighs the cost of paying premium.

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Why this matters even when the best buyer is the obvious one

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Back to the consumer products deal. The obvious buyer knew the sector. They knew where the strategic logic sat. They could have bought any number of businesses in that space if they had wanted to.

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But like every other prospective buyer in our process, they didn’t know DLI or the seller. No prior relationship with either of us. No back channel to “what the seller would really accept.” They were all dealing with our process — and our process forced them to compete as if they could be knocked out at any moment. Don’t get me wrong, we treat every buyer with the utmost respect. We do everything we can to support them in their offer process — we call it “nurturing the acquirer”: don’t trick them into a deal, help them make their best offer.

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That’s the entire game. Whether the best buyer is obvious or hidden almost doesn’t matter. What matters is whether the buyers believe the competitive pressure is real, that they could lose the deal, and that there is no second bite at the apple.

If they don’t believe those three things, they will offer you what they think they can get away with. If they do, they will offer you what they have to.

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The mistake business owners make

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When an owner starts thinking about selling, the instinct is to want an advisor who already knows the buyers. Who has the relationships. Who can pick up the phone and call the head of M&A at the most likely acquirer. That sounds like a strength. In practice, it is often the opposite.

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If your advisor has deep relationships with the buyers in your sector, those buyers feel safe. They know the advisor. They have done deals before. They know the advisor needs them for the next deal. They know how to read the advisor’s tells. They know the advisor will be reasonable.

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“Reasonable” is the most expensive word in M&A.

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You don’t want buyers feeling safe. You want them to feel that this deal is uniquely competitive, that the outcome is not guaranteed, and that the only way through is the best number they can justify internally.

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That is what makes obvious buyers offer double. Not a relationship — the absence of one, combined with a process that makes them feel the angst of losing out.

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None of which works without an advisor the buyers trust. Buyers won’t put their best foot forward for a process they doubt is real. What replaces the specific-buyer relationship is the advisor’s reputation — for integrity, thoroughness, and credibility — telling the buyer the deal is worth taking seriously.

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What to take from this

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If you are thinking about an exit and you find yourself sitting across from advisors who pitch you on their relationships, pause.

Ask yourself whether you want buyers who feel safe, or buyers who feel they have to compete. Ask yourself whether the best deal comes from the warmest conversation or the most disciplined process. Ask yourself whether the person you want representing you is the one who can call those buyers by their first names — or the one who can make those buyers believe, in their gut, that they have to lead with the best number they have ever put on a deal.

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The consumer products buyer in our recent deal offered double the next-best. Triple some of the others. The most obvious buyer in the world.

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They didn’t offer double because they knew us.

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They offered double because they believed they had to.

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That’s the whole game.

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Until next time,

Rick Grantham, Deal Leaders International

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PS: There are a few local buyers with whom we have very strong relationships. I will mention two interesting examples. One is a major SA PE firm that has participated in over 60 deal processes with us, made many offers, and is only now hoping to conclude a deal — they missed the mark on all the others. The other has bought more than 5 businesses through us… seldom the highest offer, but always the lowest execution risk. So, strategies differ depending on what you are looking for — maximum price or deal certainty.