Imagine this...
You buy a coffee mug in the store for $5. But when someone offers to buy it from you in the parking lot, you insist on $10. The mug didn’t change—but now that you own it, it just feels more valuable.
This is the endowment effect, a cognitive bias where people place a higher value on what they already own compared to what they’d be willing to pay for the same thing.
Now, apply that to selling a business.
A business owner has spent years building their company. The management team sees the long hours, the customer relationships, the brand reputation, and the potential for growth.
To them, the business isn’t just worth its financials—it’s their legacy.
A buyer, however, looks at the same company through a different lens:
What are the risks?
Are these earnings sustainable?
How much work will it take to realize the growth potential?
The result? The seller wants more than the buyer is willing to pay.
Bridging the valuation gap
When we work with business owners preparing for an exit, part of our role is countering the endowment effect to help them achieve a successful deal. Here’s how:
✅ Prepping the seller for buyer mentality – We value the business, and help sellers understand how buyers evaluate businesses: risk, growth, and return. A realistic valuation prevents deals from falling apart later.
✅ De-risking the business – Buyers discount for uncertainty. We help companies address potential concerns—cleaning up financials, securing key contracts, and ensuring strong customer retention.
For larger transactions, we work with a sell side QoE firm (who does a pre-emptive review of the financials before the buyers do), or even get the help of neutral third party market research firms to help explain the industry trends and competitive landscapes.
✅ Articulating growth with credibility – Buyers need proof of upside. We work with sellers to build a compelling narrative backed by data—whether it's pipeline visibility, customer demand, or expansion opportunities.
✅ Demonstrating synergies & incremental value – Buyers may not pay up for all the synergies they gain, but clearly showing how the deal adds value—through cost savings, cross-selling opportunities, or operational efficiencies—can make the deal more compelling and justify a stronger offer.
We craft the right messaging for buyers to envision the synergies possible in the transaction.
✅ Structuring the deal to align interests – If there’s a gap, we look at ways to structure the deal creatively—earnouts, seller financing, or performance-based incentives that align risk and reward for both sides.
✅ Using reps & warranties insurance where It makes sense – In certain deals, this can help reduce buyer concerns over liabilities and indemnities, making it easier to close a deal at a better valuation or get the seller their payment sooner.
The best M&A deals happen when both buyer and seller see value the same way.
Our job? Making that happen.
Have you ever seen the endowment effect play out in a deal?