Anyone completed diligence post close? How did you structure the terms?

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May 14, 2022

by an investor from Indiana University at Bloomington in Austin, TX, USA

I am interested in understanding how to speed up acquisitions for owners who need to exit rapidly (health reason, family issue, personal issue, etc). I've heard that it's possible to setup a structure using holdbacks/ clawbacks and other means to do this. Thus, I'd be curious if anyone on the forum has done this, how it was structured, and during diligence, if you found any gotcha's or show stoppers, how did you go about negotiating those?

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Reply by a searcher
from University of Calgary in Calgary, AB, Canada
Diligence post close is incredibly risky and may be hard to finance for both equity and debt providers. There are things like Locked Box Transactions, but you still need to perform a lot of upfront diligence prior to signing a SPA. Check out. https://www.lewissilkin.com/en/insights/us-uk-ma-price-adjustment-mechanisms--the-locked-box#:~:text=Under%20the%20locked%20box%20mechanism,are%20referred%20to%20as%20the for more details on Locked Box mechanisms.
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Reply by a searcher
from Universitat Oberta de Catalunya in Reus, Tarragona, España
It looks like it's gonna be something very stressful and risky. You have to really like the business to proceed like this, at least make sure that the price compensates you for the risk assumed, since "there are many fish in the sea" and you could look for other companies. Anyway, if the seller accepts a structure based mainly on a deferred price conditionated on the result of the due diligence, you will have "indications" that there is not something really serious hidden.
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