Reverse Earnout

by a searcher from Cornell University

2 years ago

I’m trying to find ways to keep the seller’s skin in the game on an SBA deal, and believe that a reverse earnout might be the best and most compelling option. The business took an ~8% top line hit during COVID, so I plan to use a reverse earnout to get the business back to its historical sales levels. Has anyone successfully employed a reverse earnout on an SBA deal? And if so, would you be willing to share how the language was written and how it was incorporated into your purchase agreement?

1 like
359 views
18 comments

investor from Thomas A. Edison State College

DM me and I can send you SBA acceptable language on a CPA practice management buyout that I recently advised on. It's a very technical nuanced structure but doable.

2 years ago | like reply | 1 like

intermediary from Harvard University - Harvard Business School

I don’t like the premise of the question, that you need for the seller to have “skin in the game.” Yes, I know that’s a common phrase but the most sellers they’ll tell you it’s insulting. If you don’t think you’re up for running the business, don’t buy it. If you think it’s overpriced, don’t buy it. If you can’t complete a thorough due diligence to understand the business, don’t buy it. The seller has had “skin in the game” since the day they got started. They don’t need to prove to you that they have “skin in the game.” My advice, never use that phrase around a seller (or a capable intermediary). You’ll achieve nothing productive and likely set your process back a few steps.

2 years ago | like reply | 3 likes

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Examples of self-funded searcher websites

Investor seeking Self-Funded Search Deals

What are market terms for Seller Notes?

2 Best Ways To Find Motivated Sellers, Off-Market Deals

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.