Message from buyer to seller (Bill, co-founder & CEO)10:07AMGreetings, Bill.As per our last conversation, we'd like to offer our bid...

GMAT Multi Source Reasoning : (MSR) Questions

Source: Official Guide

Multi Source Reasoning

MSR - CR

MEDIUM

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Notes

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Email 1

Email 2

Email 3

Message from buyer to seller (Bill, co-founder & CEO)

10:07AM

Greetings, Bill.

As per our last conversation, we'd like to offer our bid at $20M for your internet website business. While this is lower than your stated selling price that we received from our mutual colleague (though not more than 40% lower than your offering price), we believe it can be a fair price taking into account current market conditions and future growth risk.

At an $\mathrm{8x\text{ revenue multiple}}$ (implying $\mathrm{annual\text{ }revenue} \times 8 = \mathrm{valuation\text{ }of\text{ }\$20M}$), this already reflects a premium to many \"established\" companies - and among profitable internet companies, this is a healthy multiple.

Let us know if this is in the ball park range for a deal to be done.

Ques. 1/5

The proposed transaction structure offered by the buyer comprises what percentage of the deal in stock?

20%

25%

50%

100%

Solution

OWNING THE DATASET

Understanding Source A: Email - Initial Acquisition Offer

Information from Dataset	Analysis
"we'd like to offer our bid at $20M for your internet website business"	Buyer is making a formal offer to purchase an internet business for $20 million Inference: This is a formal acquisition bid
"this is lower than your stated selling price that we received from our mutual colleague (though not more than 40% lower than your offering price)"	The bid is below what the seller originally asked for The offer is at least 60% of the seller's asking price Inference: The seller has previously communicated a higher asking price Inference: A third party facilitated initial price communication
"we believe it can be a fair price taking into account current market conditions and future growth risk"	Buyer is justifying the lower price based on market factors and uncertainty Inference: Buyer perceives uncertainty in future growth potential
"At an 8x revenue multiple (implying $\mathrm{annual revenue} \times 8 = \mathrm{valuation of} \$20\mathrm{M}$), this already reflects a premium"	The valuation method is 8 times annual revenue Inference: The business has annual revenue of $\$2.5\mathrm{million} (\$20\mathrm{M} ÷ 8)$ Inference: Buyer considers $8\times\mathrm{revenue}$ a generous valuation
"among profitable internet companies, this is a healthy multiple"	The buyer is comparing to industry standards Inference: The target business is profitable Inference: Buyer is benchmarking against industry standards

Summary: The buyer offers $20M to purchase a profitable internet business, which is below the seller's asking price but justified by the buyer as fair based on an $8\times\mathrm{revenue multiple}$ and concerns about future growth risks.

Understanding Source B: Email - Seller's Response and Counteroffer

Information from Dataset	Analysis
"$20M is much lower than what myself and my team were expecting"	The seller rejects the initial offer as too low Inference: Multiple stakeholders involved on seller's side Inference: Clear disappointment with the offer amount Linkage to Source A: Both parties agree the $20M offer is below seller's expectations
"We expect our business to grow quickly in the coming months"	Seller believes in strong near-term growth Inference: Seller is optimistic about near-term growth prospects Linkage to Source A: This directly contradicts buyer's "future growth risk" concern
"at a revenue multiple of 8x, the valuation bid is lower than the potential value which will surely rise much higher than $20M"	Seller accepts the $8\times$ multiple but believes future growth justifies higher price Inference: Seller acknowledges the $8\times\mathrm{multiple}$ calculation Inference: Believes future value justifies higher price today Linkage to Source A: Both parties agree on using $8\times\mathrm{revenue multiple}$ as valuation framework
"We are a team of entrepreneurs and believe in the success of our business"	The team is emotionally invested in the business Inference: Entrepreneurial culture and strong belief in the business
"Perhaps we can negotiate in terms of stock and options in place of a 100% cash acquisition"	Seller proposes alternative payment structure Inference: Seller is open to alternative deal structures Inference: Willing to accept non-cash consideration
"We wish to be part of the identity of the business going forward, even after acquisition"	Seller wants to stay involved after the sale Inference: Seller wants continued involvement post-acquisition Inference: Not looking for a complete exit

Summary: The seller rejects the $20M offer as too low based on expected growth, and proposes an alternative deal structure involving stock/options while expressing desire to remain involved in the business after acquisition.

Understanding Source C: Email - Buyer's Final Offer

Information from Dataset	Analysis
"the current team has not been able to increase unique users and pageviews over the past six months"	The business has shown no growth for 6 months Inference: The business has experienced flat growth for 6 months Inference: Performance is measured by user engagement metrics Linkage to Source A: This data explains buyer's initial "future growth risk" concern Linkage to Source B: This contradicts seller's optimism about "growing quickly in coming months"
"we feel we have the appropriate talent to bring this business to the next level"	Buyer believes they can improve the business better than current team Inference: Buyer believes they can improve performance Inference: Implies current management is inadequate Linkage to Source B: This explains why buyer rejects seller's proposal to stay involved
"wish to keep the transaction in cash only - which means existing management would have no part in the business going forward"	Buyer rejects the stock/options proposal Inference: Buyer rejects the stock/options proposal Inference: Plans complete management replacement Linkage to Source B: Direct rejection of seller's proposed alternative structure and continued involvement
"We realize this is tough on you guys"	Buyer acknowledges emotional difficulty Inference: Acknowledgment of emotional difficulty for sellers Inference: Attempt at empathy despite firm stance
"we are willing to raise our bid by 25% to $25M"	Offer increased from $20M to $25M Inference: Increased offer from $20M to $25M Inference: Represents a compromise on price Linkage to Source B: This 25% increase directly responds to seller's objection to the $20M offer
"under terms that we have the right to replace existing management"	Management replacement is a condition Inference: Management replacement is a condition of the higher offer Inference: Buyer wants full control over operations Linkage to Source B: Confirms complete rejection of seller's desire to remain involved

Summary: The buyer reveals the business hasn't grown in 6 months, increases their offer to $25M but insists on a cash-only deal with the right to replace management, rejecting the seller's proposals for stock/options and continued involvement.

Overall Summary

This acquisition negotiation reveals fundamental disagreements between buyer and seller:

Both parties agree on the $8\times\mathrm{revenue}$ valuation framework
They disagree on growth prospects (seller optimistic vs. buyer citing 6 months of flat performance)
Deal structure conflict (seller wants stock/options vs. buyer demands cash-only)
Post-acquisition involvement dispute (seller wants to stay vs. buyer plans management replacement)
The buyer increases their offer by 25% to $25M but maintains firm conditions that directly oppose the seller's preferences
This sets up a critical decision point for the seller

Question Analysis

The question asks what portion of the buyer's offered payment would be in company stock rather than cash. This requires identifying the buyer's proposed transaction structure, not the seller's preferences, and selecting a specific percentage from the given options.

Key Constraints:

Must identify the buyer's proposed structure (not seller's)
Must be a specific percentage from the given options

This is a fact verification question that requires identifying the buyer's stated position on payment structure.

Connecting to Our Analysis

The Contradiction Analysis section contains specific information about deal structure preferences, showing the buyer's explicit rejection of stock-based payment and insistence on cash-only transaction. The analysis clearly documents the buyer's "cash only" stance, allowing us to answer this question directly from the available information.

Extracting Relevant Findings

The analysis reveals the buyer's clear position on transaction structure. From the Contradiction Analysis on Deal Structure Preferences, the buyer "rejects the stock/options proposal" and insists on "cash only." This establishes that the buyer's proposed transaction is 100% cash with 0% stock component.

The evidence shows that the seller proposed stock/options as an alternative to cash, but the buyer explicitly rejected this proposal, stating their wish to keep the transaction in cash only. This rejection is linked to the buyer's plan for complete management replacement.

Individual Statement/Option Evaluations

Option 0% Evaluation

Position: The buyer wants no stock in the deal, all cash
Evidence: Buyer demands "cash only" transaction
Analysis: Matches exactly with buyer's stated position - cash only means 0% stock
Conclusion: CORRECT - Buyer explicitly rejects any stock component

Option 20% Evaluation

Position: The buyer wants 20% of payment in stock
Evidence: Buyer demands "cash only" transaction
Analysis: Contradicts buyer's "cash only" stance
Conclusion: INCORRECT - Buyer rejects any stock involvement

Option 25% Evaluation

Position: The buyer wants 25% of payment in stock
Evidence: Buyer demands "cash only" transaction
Analysis: Contradicts buyer's explicit "cash only" requirement
Conclusion: INCORRECT - Stock component contradicts buyer's position

Option 50% Evaluation

Position: The buyer wants 50% of payment in stock
Evidence: Buyer demands "cash only" transaction
Analysis: Contradicts buyer's explicit "cash only" requirement
Conclusion: INCORRECT - Stock component contradicts buyer's position

Option 100% Evaluation

Position: The buyer wants 100% of payment in stock
Evidence: Buyer demands "cash only" transaction
Analysis: Completely contradicts buyer's explicit "cash only" requirement
Conclusion: INCORRECT - All-stock payment contradicts buyer's position

Systematic Checking

Cross-verification of the buyer's position across multiple sources confirms the analysis:

Source B shows the SELLER proposing stock/options as alternative to cash
Source C shows the BUYER explicitly rejecting this proposal
Buyer states "wish to keep the transaction in cash only"
This rejection is linked to buyer's plan for complete management replacement
No source indicates buyer ever considered or offered any stock component

Final Answer

Based on the buyer's explicit rejection of stock/options proposals and insistence on a "cash only" transaction, the portion of the buyer's offered payment that would be in company stock is 0%.

Answer Choices Explained

20%

25%

50%

100%

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