Deal Structure Options

January 05, 2024

by a searcher from University of Toronto - Joseph L. Rotman School of Management in Vancouver, BC, Canada

Hi All, I've been using very basic deal structure in my LOI so far. I want to understand if there is any existing literature on multiple different ways of structuring a deal ? Also, would be great if folks here can share any deal structures that they used and what led to them structuring the deal in that particular manner. Thanks!

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Reply by a professional
from The College of New Jersey in La Verne, CA 91750, USA

Thanks for the tag ^redacted‌! ^redacted‌, this is a tough ask as there are so many resources on what forms a deal structure might take. Do a quick google search for M&A Deal Structures and you'll find more than you have time to read. Deal structures can vary significantly depending on the sophistication, risk tolerance, growth expectations, funding availability, and goals of buyer and seller. Earnouts, seller notes, rollover equity, holdbacks, etc. are tools to bridge the gap between buyer and seller when it comes to perceived business value. However, whether they are effective at closing a deal depends on what buyers and sellers are willing to accept. We see a lot of deal structures in the work that we do, and many of the larger deals out there continue to close with some of these more complex structures - though there are plenty that still fall apart.

Reply by a professional
from Emory University in Atlanta, GA, USA

Thanks for the tag ^redacted‌! I have found that the combination of seller note + real estate is the best way to go. Typically, if you can get a seller note of 10-20% with the real estate value, depending on your lender (PE/investment group), it’s the best way to go. Or, sometimes you can do AR factoring, as well to close in the gaps. If you want specific literature regarding deal structures, I recommend you check out the book “Building Wealth Without Risk” by Frasier and Abraham. Many great insights to deal structure and execution. Best of luck to you!

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