Willing Parties, Who Has Heard?
There is always a point where one will walk away from a deal and one will not.
How “Willing Parties” Fiction Cost One Seller $3M Before She Learned the Truth
Sarah Chen made a $3 million mistake in 2017. By 2021, she’d learned exactly how to avoid repeating it and captured every dollar of that mistake plus more in her second exit.
Her story perfectly illustrates why the “willing buyer, willing seller” assumption in Fair Market Value definitions is complete fiction.
The First Exit: Amateur Hour (2017)
Sarah built CloudSync Solutions from 2012-2017, growing the SaaS workflow automation platform to $1.8 million ARR with 75% gross margins and strong retention metrics. By early 2017, she was exhausted, burned out, and ready to exit.
She hired a local business broker who created a basic offering memorandum and reached out to buyers individually. Within six weeks, they had an interested party: MidTech Solutions, a regional software company looking to expand their product suite.
The negotiation felt collaborative and friendly. MidTech’s CEO, David, was personable and enthusiastic. “We love what you’ve built,” he told Sarah repeatedly. “This is exactly what we need.”
MidTech offered $10.8 million total consideration structured as follows:
Base price: $7.2 million (4x ARR)
Performance earnout: Up to $3.6 million over three years based on revenue retention and growth
Sarah’s broker said this was “very fair market value for a SaaS business of your size, and the earnout gives you upside participation.” The initial cash at closing was 40% ($4.32 million), with the remaining 60% dependent on hitting aggressive earnout targets.
Sarah signed the letter of intent within two weeks.
Looking back, every FMV assumption was supposedly met:
Willing parties? Check. Sarah wanted to sell, MidTech wanted to buy.
Informed and prudent? Check. Both had financial statements and legal counsel.
Arm’s length? Check. They’d never met before the process.
No compulsion? Check. Nobody was forcing the transaction.
But here’s what Sarah didn’t know at the time:
MidTech’s Hidden Compulsions:
Their largest customer had issued an RFP requiring workflow automation capabilities
Losing this customer would cost them $2.4M annually
They had 90 days to demonstrate the capability or risk termination
Building the capability internally would take 18-24 months
Sarah’s solution was the only mature product available in their acquisition window
MidTech’s Information Advantages:
They knew their customer would pay $800K annually for integrated workflow solutions
They’d calculated $1.2M in cost synergies from consolidating infrastructure
Their existing sales team could cross-sell CloudSync to 200+ current customers
Conservative projections showed $3.5M in incremental profit within 24 months
The Real Transaction Reality:
MidTech wasn’t “willing,” they were desperate
MidTech wasn’t “informed equally,” they knew synergies Sarah couldn’t see
The relationship wasn’t “arm’s length,” it was strategically cultivated to build trust while hiding urgency
MidTech faced massive compulsion from customer retention risk
The earnout structure gave MidTech control of revenue recognition, pricing decisions, and resource allocation. Over three years, Sarah received only $3.6 million of the $3.6 million earnout potential, 100% of what was contractually possible, but MidTech had structured the metrics knowing they’d maintain just enough performance to avoid breach while maximizing their own economics.
Total proceeds: $7.92 million Synergy value captured by buyer: $8-12 million
Sarah’s share of total value created: ~40%
The Second Business: Learning from Mistakes (2018-2021)
