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Deal Structure

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Deal Structure

Posted 09 Mar 16 by Matt Swan

It is important to understand the likely deal structure (which will differ depending on the acquirer), in order to assess the appropriate time to commence the process.  With handover periods becoming commonplace, it is clear that the exit process should be considered well before your planned retirement.

Acquirers in the current market are utilising a number of strategies to minimise the risk associated with the acquisition including:

  • Deferred consideration/earn-outs - Part of the agreed consideration (20% - 30%) may deferred for a period of 6 - 24 months which may be contingent on the business reaching certain milestones. 
  • Consultancy agreements - Owners continuing for a period of 12 months to 24 months to assist with the handover of customers and business operations.
  • Key employee contracts - Employees identified as key to the success of the operation are contracted for a period (post sale) prior to executing sale documents.
  • Non-compete agreements - Owners sign non-compete agreements for a period of up to 5 years.

There is often a level of procrastination or the delay in making decisions around the process by owners as a result of the following factors:

  • Loss of income - owners require or desire a certain level of income to maintain their lifestyles and are hesitant about their exit.
  • Loss of control - owners not wishing to be subject to the demands of new owners while still working in the business. 

 There are multiple variations of deals which can work for owners which may include:

  • A staged buy-out where new owners complete the buy-out of the existing owner in a number of agreed stages. Depending on the terms of the agreement, this can also benefit both parties by incentivising new owners to grow the business with both parties to benefit in the event of a trade sale to a third party.
  • Owners stepping back to a part-time arrangement or only looking  after key customers/clients or focussing on key service areas

The failure to recognise that a complete exit can be achieved with no involvement or limited involvement post sale will decrease the probability of a successful sale, and reduce the value that can be realised at the time of sale.

If you are considering the sale of your business please contact Matt Swan or another member of our Corporate Finance team for a confidential discussion by clicking the button below.

This article is part 5 of a 7 part series.


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