Very often there is a discrepancy between the value expected by the seller and what a buyer is willing to pay. The seller often wants to consider emotional factors, or he wants to maintain his lifestyle after the sale, or he discounts potential gains to come! Here are some leads that can lead to a win-win transaction!
- Payments spread over time or a balance of sale.
- The amount is determined at the present time, but the payments are paid over a timeframe. The payment or not of interest makes it possible to reduce the difference.
- An additional price or “earn-out”, risk sharing can be based on:
- Income – very simple; if revenue increases, the seller benefits from a portion of that increase.
- EBITDA – be careful of strategic decisions that would affect EBITDA.
- Gross Profit – This method decreases the risk of strategic decisions since the calculation is based on revenue less cost of sales.
- A partial purchase
- Such an agreement could provide for the purchase of X% of the shares on the closing date and subsequent purchases of up to 100% of the shares. The method of future purchases should be determined to align the interests of both parties.
- An exchange of shares or “stock option”
- If we do not agree on a multiple, by exchanging shares between the two companies, we maintain the same basis.
- Future compensation to the shareholder
- A consultancy contract – remuneration in the form of fees.
- A retention bonus – different factors can be considered – customer retention, employee retention.
- The maintenance of additional assets by the seller
- The seller can maintain them, either rent them or sell them over time to others or to the buyer or simply keep them.
- All these answers are correct!
- It is allowed to be creative and use a combination of these different options!
Remember… the important thing is to arrive at a win-win transaction for the seller and the buyer!