How to counter typical seller objections for earnout and seller note?

by a searcher

3 years ago

In almost every deal that I come across I encounter a typical seller objection for earnout or seller note along with lines of - "I will not be in control of the business post sale, so I do not want to have my sale proceeds over something that I'm not in control of in the form of an earnout or a seller note" - or a similar variant. Obviously as a buyer I do not want to give all of the amount as cash at closing and I do want to hold some back. 

My question is - what is the most effective way for a buyer to counter this typical seller objection during initial negotiations?

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professional

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2 months ago | like reply | 0 likes

searcher from INSEAD

They are two different points. The earnout, you can counter by saying that they will potentially get more money than if they take everything at closing (by keeping multiple constant and if business continues to grow). Seller not, I typically find less resistance, but what I explain to them is that it is a way to earn a return on their cash (otherwise what are they going to do with it? keep it in the bank? clearly the return needs to be better than what they would get from the bank or in a money market fund which was easier when interest rates were lower but can still be done)

2 months ago | like reply | 0 likes

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