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Structuring An Acquisition

When you are looking to acquire a company or sell your company you will more than likely come across some structuring issues. Because a company is often worth millions of dollars it is unlikely that an acquisition will take place as a straight up cash buyout. In addition to that notion, most valuation are based on the future performance of the company. Typically the acquiring company will want to spread out the risk associated with an acquisition so they will make some of the future payments for the company contingent on reaching a set of revenue or EBITDA projections.

In some cases, typically when the owners and management team are remaining on board after the acquisition, the buyers will structure the deal to pay a higher than agreed upon amount if the projections are above expectations. This is typically the case when the ambitious and optimistic entrepreneur’s expectation are very high, and the skeptical and conservative buyer’s projections are a little lower. The deal will provide a compensation for the entrepreneur if his expectations are accurate and it won’t damage the buyer if her expectations are right.

The deal will typically include some form of cash upfront on the signing date. Then the deal will include a buyout structure that is based on the trailing 12 month EBITDA. If the actuals are above projections then both parties win, if the actuals are below expectations then both parties lose and the loses are spread equally. This give both parties the motivation to ensure the company is successful after the signing date.

If you are having issues structuring a deal, or finding the company that is right for your future expansion plans, we recommend you contact us at Deal Capital and we will assist you in this field where we are the experts. We look forward to hearing from you.

Troy Jenkins
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