Obligations to Seller

by a searcher from Queens University

3 years ago

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 likes
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11 comments

searcher from Harvard University - Harvard Business School

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.

3 years ago | like reply | 0 likes

professional from Vanderbilt University

I don't think anyone should think of this as an obligation. But it will likely give the seller more confidence that you will be able to complete the transaction. I have advised buyers and can think of one situation in particular where we lost the deal because we weren't able to fully satisfy the buyer regarding the details of the acquisition capital structure.

3 years ago | like reply | 0 likes

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