How do you determine escrow amount & value consulting agreement in offers?

by a searcher from IESE Business School

5 years ago

I'm interesting in hearing how you go about deciding how much to set aside in escrow for working capital and how to value the consulting agreement when you make an offer? I have separate line items for both of these in my IOI, and am curious to hear if you list these in your IOIs/LOIs as well? And if you do, do you have the same percentage figure for escrow and the same dollar amount for the consulting agreement independent of industry? I realize these are figures up for negotiation later in the process, but would suspect there should be some industry differences that may make certain offers more or less appealing. Thank you for sharing your insight on this!

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professional from Bentley University

Max, looks like you have received plenty of great feedback on your escrow question. Speaking to the consulting agreement - I think the driver here is the dependency on the seller post-closing (customer retention, industry knowledge, etc.). I have seen deals with large escrows have minimal consulting agreements and vise versa.

5 years ago | like reply | 0 likes

searcher from The University of Auckland - The University of Auckland Business School

Not sure this helps but for working cap I followed Ruback & Yudkoff's advice per the book and put this in the LOI (as it's often a late-stage deal-breaker I wanted it up front) - used their formula: working cap = receivables + inventory - payables. In terms of holdback escrow, the median amount is 9% for 18 months and about a quarter had a claim - more info here if you still need it -http://www.carr-mcclellan.com/holdback-escrows-in-ma-transactions/

5 years ago | like reply | 0 likes

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