Obligations to Seller

searcher profile

October 26, 2020

by a searcher from Queens University in Edmonton, AB, Canada

What are the community's thoughts or convention around giving the seller details on the capital structure being used to buy a business? Is there an obligation around informing them about the amount of debt vs. equity is being used?

2
11
155
Replies
11
commentor profile
Reply by a searcher
from Harvard University in Fort Wayne, IN, USA
I've had several sellers ask for specifics as well. Most of it comes from a concern around debt coverage. Interestingly, in one deal, it helped me get a bit more detail about the profit swings that ultimately made me walk away. As said above, it's going to come out at some point, so you should share it if they ask.

I like to use the "let's share the profits 50/50" line during the early stages of LOI negotiations on "ambitious" pro formas to gauge their level of concern. It not a perfect signal, but it's led to interesting conversations on several deals. Good luck!
commentor profile
Reply by a searcher
in Boston, MA, USA
I don't feel it's an "obligation," but from my (admittedly secondhand) observations it's practically table stakes. Especially in a world in which you have an earn-out, seller note, rollover equity, etc. they'll all but demand - rightfully so - to understand where they fall in the capital structure.


Putting your sources and uses into a tightly controlled black box doesn't sound like a recipe for success when you're looking for transparent negotiations / candid information-sharing / ongoing partnership (at least during a transition period) from a seller.
commentor profile
+9 more replies.
Join the discussion