Exactly. This is why they are looking to bring in a group of partners underneath them -- this is a long-term succession plan.
This makes it a very fickle investment at best, especially if you think they really don't have a firm grip on their books.
It is a "fickle" investment, but I have a better understanding of the firm's finances than either of the partners. I have no concerns in that regard, and I'd be an ideal partner because I have plenty to offer in terms of improving the way we operate. The problem is that at the value they've pegged on this company it makes no sense to buy into it -- I'm having a hard time convincing them that their legal/accounting advisor is advising them poorly.
I recently helped my daughter offer three percent below asking price for real estate. Since the sellers had multiple offers, we ended up paying two percent above asking price.
The price we paid was more in line with prices which had been paid for similar properties recently. The local market showed a compound annual growth rate in prices of between 13 and 21 percent for the last five years.
I struggled during the negotiation to find a basis for deciding what the "value" of the property was. Now that the property is in escrow, anyone else will have reason to believe that it is worth exactly what we paid.
Because you are looking at a more unique "property" it is harder to find "comparable" properties with which to compare.
Is there anyone beside yourself in the running for this opportunity or are you the only conceivable buyer? If there was another buyer, what value would that buyer put on the deal? Would he have any reason to value it differently than you do? Would he have any reason to value it the way the "sellers" wish to value it?
Similarly, are there any other "sellers"? Is there another partnership into which you could buy? Would you value such a deal any differently than you are valuing this one? In this alternative partnership, are there any justifications for using the valuation method that you have otherwise found unacceptable?
Of either you or the "sellers", which has the most lattitude in concluding the deal? If you are younger, then you might conceivably wait until another opportunity arrives. If the "sellers" are older, they may not have any latitude. Perhaps they must sell now.
How far apart are the two valuations? Is it possible to identify a mutually acceptable mediator to consider the two methods and to voice a persuasive opinion regarding them?
Your concern makes it appear that the two valuations are quite far apart. Is it at all possible that there are issues that appear to be understood but which might explain the size of the difference? Are there ways to restructure the deal so that the issues which cause the valuation difference can be separately handled or deferred until later? Sometimes the tail can be wagging the dog.
Is there any way to "test drive" the deal? Can you purchase an option on the deal at their price and defer the decision until their argument might be more convincing? Can you "test drive" for eighteen months at your price, with a full refund if not happy, or a payment due of the difference if you are happy.
You mentioned that 5% of some past fees have been retained by customers and that this adds up to an appreciable amount. Perhaps some third-party speculator would buy these future payments at a discounted price now, increasing the likelihood that the partnership collects. Perhaps the "sellers" can separate out some of the retained payments in order to decrease the impact on your decision. The ability to collect these funds would then be of less concern in your valuation.