Would you pay?

Water Cooler
#1

you’re the buyer of a company, going through the diligence process, scrubbing down management’s financial projections, etc.

the operating plan put together by the seller includes a significant capital project which has a substantial positive impact on the projected financials (both top line and margins) in the outer years. it would take a few years to build and require a large capital investment for which funding has not been secured and will be responsibility of the buyer.

it is a positive NPV project but why would a buyer pay any premium for something like this - any possible arguments for that? what if debt financing is already secured but that’s it? if engineering plans are legal permits are in place but construction has not begun at all? if it is 25% complete?

#2

What if the seller has expertise or intellectual property that makes them uniquely qualified for that project? If you can replicate that project externally, then it doesn’t seem like it should command a price premium.

#3

With ohai on this. Unless seller has something unique that makes the project possible only for them, I can think of no reason to pay them for anything you’re going to have to pay for again in the future. Maybe a slight premium on any direct costs they’ve already incurred to compensate them for their efforts, but very slight.