Cashless merger / creative earnout structures

by a searcher from Dartmouth College - Tuck School of Business at Dartmouth

3 years ago

Working with a business in an industry hit hard by Covid.  The owner sees a roll up opportunity of distressed competitors.  His business is in OK financial shape, but a cash outlay today is still a risky proposition.  First, does anyone have ideas on creative earnout structures where he could buy and control the go-forward entity, but put little cash down today? Second, if I help him with this strategy and put minimal equity capital to work what are creative ways for me to earn a stake in the go-forward entity?

2 likes
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6 comments

investor from Concordia University - John Molson School of Business

Mike points out a key detail in mitigating the liabilities as every situation will differ to that business. Selling yourself to get to an agreement on the main points before moving forward can save a lot of headaches.

3 years ago | like reply | 0 likes

searcher from George Washington University

I agree. The devil is in the details of the deal structure. A business valuation is real and perceived, what you bring to the table is equally real and perceived. One capacity to execute is not known. So your equity ultimately is based on what that perception is and should be structure on your present and future performance. Legal structure would most likely take all of that in to account.

3 years ago | like reply | 0 likes

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