Coltrane Optics: Assessment

Refuse the Floor

Multiple Choice Questions

1. According to the post, Fair Market Value should be treated as:
   A. Your asking price
   B. The lowest price you should accept
   C. The average of all offers
   D. A legal requirement

2. What did the Goldman Sachs example primarily demonstrate?
   A. Better financial analysis raises price
   B. Cutting costs raises price
   C. Opening the market to new buyers creates value
   D. Faster negotiation raises price

3. Which group is usually the worst buyer for a small specialty business?
   A. Foreign market entrants
   B. Direct local competitors who can wait you out
   C. Private equity platforms
   D. Strategic device makers

4. The phrase “no compulsion to act” in FMV means:
   A. Contracts are not binding
   B. Neither party should feel pressured to transact
   C. Buyers must act quickly
   D. Sellers must accept the first offer

5. According to the post, the more informed party in a transaction:
   A. Always pays more
   B. Always does better in the deal
   C. Is always the seller
   D. Is always the buyer

6. What is “marketability” in this context?
   A. How much you spend on advertising
   B. The breadth and competition of your potential buyer pool
   C. Your revenue growth rate
   D. Your EBITDA margin

7. An “arm’s length” transaction is one between:
   A. Family members
   B. A parent company and subsidiary
   C. Independent parties acting in their own self interest
   D. A buyer and their own advisor

8. According to the post, why should an owner remove their own compulsion to sell?
   A. To avoid paying taxes
   B. To negotiate from strength and command the price
   C. To delay the sale indefinitely
   D. To reduce due diligence

9. In the FMV definition, “open and unrestricted market” should be read as an invitation to:
   A. Sell only to competitors
   B. Expand the buyer pool to many categories
   C. List the business publicly
   D. Avoid private equity

10. The author argues owners research the market for their products but rarely research:
    A. Their competitors
    B. The market for their own shares
    C. Their tax position
    D. Their employees

Essay Questions

1. Explain why the author insists Fair Market Value is the floor rather than the target, and what an owner should aim for instead.

2. Using the Goldman Sachs example, describe how marketability alone created additional value without any change in revenue or income.

3. Define information asymmetry and explain why being the more informed party gives a seller negotiating power.

4. Explain the concept of “no compulsion to act” and describe how a seller can eliminate their own compulsion while increasing a buyer’s urgency.

5. Describe how repositioning into a defensible niche can raise total business value even if revenue or income falls.

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SOLUTIONS, ASSESSMENT 1

Multiple Choice Answer Key

1. B. FMV is explicitly framed as the lowest price you should agree to, your floor, not your target.

2. C. The bank added value purely by opening the market to a buyer the owner could not reach, with no change to revenue or income.

3. B. Direct local competitors understand the business well enough to pay the least and have no urgency, since they can wait the owner out.

4. B. “No compulsion to act” means neither party feels pressured, the calm, deliberate behaviour that premium sellers work to disrupt on the buyer’s side.

5. B. The post states the more informed party always does better in the deal.

6. B. Marketability is the breadth and competitive intensity of your potential buyer pool, the hidden lever that lifts price above FMV.

7. C. An arm’s length transaction is between independent parties acting in their own self interest, the baseline assumption behind FMV.

8. B. Removing your own compulsion lets you negotiate from strength, a business that does not need to sell commands the price.

9. B. The clause is an invitation to expand the buyer pool well beyond competitors to private equity, strategic, foreign, and institutional buyers.

10. B. Owners survey the market for their products but almost never survey the market for their own shares.

Essay Solutions

1. FMV defines the minimum reasonable price between unpressured, equally informed, independent parties. Accepting it means capturing none of the premium available from strategic fit, scarcity, and competition. The author’s point is that a seller who anchors on FMV has already conceded the upside. The target should be the highest price a motivated buyer will pay, achieved by opening the market, building information advantage, removing seller pressure, and creating competitive urgency so buyers exceed the floor.

2. In the example, the owner’s business did not change. The investment bank simply accessed a global buyer network the owner could not reach, surfacing a buyer willing to pay 70 million for a company the owner struggled to sell at 50 million. The 20 million of additional value came entirely from marketability, proof that who can see and bid on your company matters as much as the financials themselves.

3. Information asymmetry exists when one party knows more than the other. In most deals the buyer runs deep due diligence on the seller while the seller learns little about the buyer, handing the buyer the advantage. A seller who reverses this, understanding the buyer’s strategy, pain points, and reasons for wanting the company, can position the business as the solution the buyer must have, shifting negotiating leverage and supporting a premium price.

4. “No compulsion to act” assumes neither side is pressured. A seller can eliminate their own compulsion by building a business that runs without them and does not need to be sold for survival, which allows a credible no. Simultaneously, the seller increases buyer urgency through scarcity, competitive bidding, deadlines, and strategic positioning. The asymmetry of low seller pressure and high buyer urgency is what pushes deals above FMV.

5. Value equals income divided by required return, so the multiple, driven by risk, can matter more than the income itself. Repositioning into a defensible niche reduces business risk, often improves margins, and makes the company a strategic must have. Even if revenue or income dips, the lower perceived risk expands the multiple enough to raise total value, and the niche position attracts premium buyers who pay for strategic fit rather than trailing financials.

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