Creative Financing for Deals Where the Owner Stays Onboard Post-Transition?

December 18, 2024

by an intermediary from University of Massachusetts at Amherst in Boston, MA, USA

Hi everyone,

I’m curious to hear from anyone who’s structured a deal using creative financing where the business owner stays onboard after the transition.

Specifically, I’d love to know:

What financing methods worked best (e.g., seller financing, earnouts, equity rollovers)?
How did you structure the owner’s involvement post-transition? Did they stay in a leadership role, consult, or assist with operations?
What challenges or benefits did you encounter with this type of arrangement?

Any insights, lessons learned, or examples would be really helpful. Thanks in advance!

Reply by a professional
from Villanova University in West Chester, PA, USA

^redacted‌ I’ve worked on a lot of creative financing deals, and what I’ve found is that there’s no one-size-fits-all solution. Different structures work better depending on the specific situation. Each option has its pros and cons, and the right choice often comes down to how easily control and influence can be transferred in the business. For example, if it’s relatively easy to transfer leadership, the seller might stay involved in a leadership role. But if that transfer seems tricky, a consulting arrangement might make more sense and work better for everyone. It really comes down to evaluating the specifics of each deal and finding what fits best. I’d be happy to have a consultation call and discuss this further.

Reply by a lender
in Falmouth, MA, USA

It all comes down to the transaction risk and desired outcome:

- Price disagreement? Use an earnout or contingent seller note to bridge the gap.

- Client concentration? A contingent seller note is a great tool to offset the risk.

- Long-term alignment? A rollover equity structure keeps the seller invested in the business's future success and gives them a taste of the "second bite of the apple."

The structure and amount depend on the specific risk and the gap that needs to be addressed.

+5 more replies.

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