Don’t Name the First Number: Lead with an IOI

We’ve already published many articles on different deal sourcing strategies. But sourcing the right, best-fit opportunities is only one, albeit important but part of the overall acquisition process.

Perhaps the most important part is reaching alignment on Enterprise Value (EV). Even though most sellers initially say that, while price matters, the buyer’s strategy or their employees’ security is more important, the purchase price ultimately determines whether a deal closes.

We won’t dive into valuation methods today. There’s plenty written on that. The question here is: how do you walk the fine line between naming a fixed number and keeping the conversation moving?

Whoever names the first number is usually at a disadvantage, because prices rarely get adjusted upward from there. If the seller goes first, there’s a risk the figure sits below the buyer’s expectations and leaves money on the table (admittedly rare). If the buyer goes first, they may come in well below the seller’s expectations and jeopardize the deal altogether.

Our advice in this situation is to lead with an IOI (Indication of Interest) without naming a fixed EV. The IOI should either spell out the valuation approach (for example, the multiple offered on a metric such as the average EBITDA over the past three years) or present a price range that’s broad enough to allow movement, yet tight enough to frame and anchor expectations. For example: “Based on the information available and our conversations to date, we estimate an enterprise value between $3 million and $5 million.”

This approach doesn’t close doors; it keeps them open. You can then move into LOI negotiations and fix the enterprise value, or the valuation method, at the appropriate time.