When an entrepreneur is engaging in the M&A process many times the owner will receive an offer that involves a combination of cash and stock. For example, many times the offer is 60 – 80% cash with 20 – 40% stock. However, some deals are structured more like a merger where the buyer does not want to offer cash at all but simple allow the seller to retain equity after the closing of the deal. While the seller could pass on the deal, there are also ways to structure the M&A deal to ensure the seller receives the cash he or she needs when the stock is sold over the following months and years.
We have all heard the phrase, “risk, risk, risk, equals reward, reward, reward.” The more risk the seller is willing to acquire and endure the greater chance of upward potential. If the seller is confident the deals will be a good fit and that the companies will continue with a northward value trend, then it might be a good idea to retain the equity with the upside potential.