Experiences with Seller Financing?

May 21, 2023

by a searcher from Columbia University - Columbia Business School in Santa Ana, CA, USA

Hi All,

I'd like to discuss experiences with seller financing, and equity rollovers

What amounts have you found success with and what structures have you used? Are different industries more open to it, or have you found it is more dependent on the individual.

Non-searchers perspectives welcome too (investors, brokers, advisors, etc.)

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Reply by a lender
from University of Missouri in St. Louis, MO, USA

Joshua, the set up of the seller note and/or equity roll will depend on what you are looking to accomplish. If they have a specialty of some kind that makes them vital to the business (i.e. licensing or maybe has all the customer relationships) then having them involved post close would make sense. If you are trying to marry their payment to performance post close, a contingent seller note would seem appropriate. It really does vary from deal to deal. One thing I would say, the adage is skin in the game on seller financing. However, it is a little more than that. Even if you have reps and warranties it is difficult, and most often financially untenable, to pursue the matter legally. You would probably spend more in legal fees to chase them down then you would get in court. The seller note can be your leverage if the seller misrepresented or didn't disclose something at close.

Reply by a searcher
from The University of Michigan in 1075 Gills Dr, Orlando, FL 32824, USA

The short answer is that no seller wants to hold a note and needs a good reason to do it. A good company in a competitive market will have numerous offers and if there are 2 similar offers, one with a note and one without, then the seller will take the one without the note. However it's a good idea to have one if you can negotiate it because then the seller has some skin in the game. It's easiest to negotiate as a bridge to a valuation gap or to mitigate a specific risk (e.g. customer concentration). In these cases it's a good idea to make the note contingent on hitting milestones the seller has claimed will happen.

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