Acquisition Structuring

searcher profile

July 28, 2024

by a searcher from University of Edinburgh - Business School in Sammamish, WA, USA

Does anyone have examples of how small business acquisition deals are structured? If you have examples of real-world scenarios and how different methods are used in each scenario, that would be super helpful, e.g., Under what conditions are earn-out warrants, key person methods used, and how are they used?

The reason i'm asking is:
1. I have a deal i'm evaluating (franchise) where:
1.1 the last year, there has been a 12% increase in revenue; the average is 6%
1.2 The owner is transparent with their bonus structure showing a 300% increase in performance bonus payments to key employees during this higher period of growth.
1.3 There is a change in the situation of the key people at the team is being restructured.
1.4 The owner is adding back the excess bonus payments to increase SDE in my view they double dipping if they do this, i.e it was the investment in growth that lead to this higher revenue so if bonus payments are taken out to get to sustainable earning the new revenue has to be taken out.

So i'm looking for deal structuring tips to use earn out, key person clauses to protect the buyer( me) and the seller. I don't want to overpay if the future does have the past performance with the changes in the situation of key people, and i can't valuve growth if the drivers of growth is being removed.if i give the owner benefit of the doubt and value growth i would like to add clauses to protect myself In addition, I also want to fairly compensate the seller for these intangible assets if these key people stay and the new revenue levels and earnings prove to be sustainable.


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Reply by a lender
from University of Missouri in Denver, CO, USA
I agree with your sentiment that it is hard to justify adding back bonuses when those lead to the increased revenues. It sounds like you should be looking at a forgivable note either based on retaining the key employee or matching certain revenue figures.
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Reply by a lender
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA
We would be happy to have a discussion to go through your situation to see how we can help you. Please let me know if you would like to discuss at redacted
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