Put Options in Deal Terms

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by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School
in Raleigh, NC, USA

1yr ago

Put Options in Deal Terms

My second attempt at posting this as I'm sure the first failed attempt was user error.

I recently listened to an episode of the podcast "Acquiring Minds" where the host was interviewing investors in self-funded search. It was a great listen btw but there was a topic discussed I wanted to bring to the group. One investor brought the idea of adding a put option into the deal terms to essentially force the a liquidity event for the equity position in years 5 or 7. It didn't require the sale of the entire company, and there were several other conditions around the specific option, but it did require a force buy back of the equity. After listening to the podcast the idea sounded reasonable to me, but I wanted to bring it to the group and ask if: any self-funded searchers had seen investors push for a put option in their deal terms, if any searchers had any strong opinions against this idea, or if any (now) owner/operators had actually executed on this put option in their business.

Thanks!

1 Like

108 Views

reply by a professional 1yr ago
from Villanova University in West Chester, PA, USA

^redacted‌ A‌bsolutely, good luck with everything. Feel free to schedule a consultation call if you'd like additional assistance with this.

reply by an investor 1yr ago
from New York University in New York, NY, USA

Hi Austin - I push for put options in my ETA investments, though I definitely try to keep it fair to both sides as ^redacted‌ notes above. It's on a "best efforts" (commercially reasonable) basis starting in year X and if the company cannot make a cash payment then we will negotiate a mutually agreeable note. Part of the reasoning to include a put is that I want it documented that there is an expectation of a liquidity option at some point. Without this, the sponsor can just stay in the deal forever - which isn't an issue at all, but I at least want the option to exit down the road and if the company is in position to do it.