A broker sends a deal summary, and the seller's expected price is above the range the buyer had in mind. It is tempting to close the file or work backward from the asking price until the model says yes. Both moves skip a useful first question: are the two sides talking about the same business, earnings, and terms?
A high asking price does not tell a PE buyer whether the company is a bad investment. It tells the buyer where the seller wants the conversation to start. The buyer still has to decide whether the business fits the firm's criteria and whether its own underwriting can support a price.
Before spending time on a full review, clarify what the number means, build a buyer-side range from the information available, and identify the assumption that explains the gap. Continue only if an answer or a piece of evidence could change the decision.
First, make sure you are comparing the same thing
A stated price can refer to the value of the whole business, the amount expected for the seller's equity, or a figure tied to a particular set of assets and liabilities. The difference matters. A business with real estate, cash, debt, or several locations can be described in more than one way.
Ask what is included in the transaction and which financial period sits behind the headline earnings. Is the seller discussing the whole company or only part of it? Do the figures cover the same operations and time period that the buyer is using? NYU Stern's valuation notes distinguish firm value from equity value and explain why matching the measure to the question matters. At an early screen, the buyer does not need every detail. The buyer does need to know what the number describes.
Build your own range from the information you have
Start with the firm's criteria and its own view of the opportunity. Use the reported financial period, note any adjustments that have been presented, and keep unconfirmed assumptions visible. If the price depends on a higher earnings figure or a growth forecast, write down what supports that view instead of quietly adopting it.
A seller's multiple or a broker's comparison is a useful question to examine, not a conclusion by itself. Aswath Damodaran's overview of valuation multiples explains that multiples depend on how they are defined, which companies are treated as comparable, and the growth, risk, and cash-flow assumptions underneath them. That is why a quoted multiple does not settle whether this particular deal makes sense.
The buyer's range should reflect the business as it appears today and the investment case the firm can support. Do not raise expected growth, margins, or exit value simply to reach the seller's number. If the business could be worth more under a different plan, separate that possibility from what the current information shows.
Find the assumption behind the gap
A broad disagreement about price is hard to act on. A specific difference can be checked. The seller may be using a different earnings period, including property in the sale, expecting a particular growth step, or relying on a view of customer demand that the buyer has not yet seen.
Ask the broker or seller which point matters most to the expected price. The question can be simple: what is the main assumption we may be treating differently? That answer helps the buyer see whether the gap comes from a different definition, a different set of facts, or a different view of future performance.
If the explanation is only that similar businesses sell for more, ask what makes those comparisons relevant. Differences in size, earnings quality, customer mix, growth, or transaction scope may change the comparison. The point is not to debate every number. It is to learn whether the seller's case rests on evidence the buyer can review.
Request only information that could change the answer
The first screen is not the time to ask for every file in the data room. Choose one or two items tied to the gap: the period behind the earnings figure, the detail behind an adjustment, the assets included in the sale, or the records that support the growth assumption. If none of those facts could change the buyer's range, more detail will not make the deal fit.
Keep the distinction between fact and assumption clear. A seller's forecast can be useful, but it is not the same as a result already achieved. A planned price increase is different from a price increase customers have accepted. A pipeline is different from work under contract. The buyer can decide which evidence is needed before taking the next step.
Use deal terms carefully
Sometimes the parties agree on the business but see uncertainty differently. Later in a process, they may discuss terms that allocate some of that uncertainty. The right structure depends on the facts, financing, legal advice, and the parties' priorities.
Structure should not disguise a price that the buyer's investment case cannot support. A deferred payment or contingent amount still has cost, conditions, and risk. First understand the economics, then decide with the firm's advisers whether a structure addresses a specific difference or simply postpones it.
Know when to keep going and when to stop
Keep the conversation open when one clear answer could change the buyer's view and the seller is willing to discuss it. State what the team needs to understand and why. That gives the intermediary a focused next step and keeps the buyer from spending time on broad requests.
Pass when the price depends on assumptions the buyer cannot support, when the scope or earnings do not match the firm's criteria, or when no evidence could bring the opportunity inside the investment case. A prompt, respectful answer is more useful than a long silence. If the facts or expectations change later, the buyer can reconsider based on the new information.
The question is not whether the seller's asking price is high in the abstract. It is whether the buyer can explain a credible range for this business and identify what, if anything, could change it. If the answer is no, stop early. If one specific fact may matter, ask for it and make the next decision from there.