Benefits of Setting a Fixed Price vs. a Fixed Multiple

Deal Capital is currently working on a strategic rollup with one of its private equity partners. The partner has engaged Deal Capital to find a number of business owners looking to sell trucking and logistics companies that can be rolled together into a larger platform. As part of this rollup the private equity group has been offering the companies that have signed the Strategic Acquisition Agreement an EBITDA multiple bases on the valuation placed on the business. Once the rollup has been completed each of the companies will be paid the EBITDA multiple that was agreed upon calculated with the most current EBITDA at the time of closing.

While this is beneficial because it give the private equity group a clear understanding of what it is paying for the cash flows, it is also risky. When a company knows that it is under a Strategic Acquisition Agreement it can begin to do things that may increase the currently EBITDA but may not necessarily be beneficial to the corporation in the long run. While these things may or may not be discovered during the due diligence they are not beneficial. It is for this reason that it may be better to agree on a price rather than a multiple.

Two of the companies that were brought into the rollup by Deal Capital’s M&A professionals had an idea regarding the price that the owners would be willing to sell at, however, as we danced around an EBITDA multiple we decided that it would be better to offer a flat price for two reasons, one was to make sure the sellers would be happy at the time of closing, the other was to ensure that the owners would keep working in the best interest of the company prior to closing rather than doing what would be beneficial in the short term and not necessarily beneficial in the long term.

Currently Deal Capital is still looking for more companies to include into the rollup, but is pleased to announce that the majority of the companies that will be included are either under a Strategic Acquisition Agreement or under negotiations and projected to be under the SAA in the near future. The rollup consists of $150 million in revenue with $16 million in EBITDA. For more details on this opportunity please contact Deal Capital’s professionals.


Troy Jenkins
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