Rolling equity

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by a searcher
in Northampton, UK

1yr ago

Rolling equity

Have a potential deal where the Seller is happy to hold onto a 25% stake (he currently owns the hole thing through a Holdco) and has suggested that I just buy 75% of the trading entity rather than him rolling his equity into a newco.

Obviously this is quite lucrative for me so I am not particularly motivated to enlighten him but surely he will be advised against this later in the process so might as well inform him now?

Are deals done where the Seller retains the original equity rather than rolling into a Holdco?

Thanks

1 Like

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reply by a lender 1yr ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

We see a lot of deals these days getting done where the seller is retaining equity. You need to work with your accountant and tax attorney to verify how this structure might impact you. Depending on the nature of the business and when licensing or client agreements are in place that might not be easily transferable, doing a stock purchase may be preferred.

reply by an intermediary 1yr ago
from The University of Chicago in Chicago, IL, USA

I am not clear. Is there a HoldCo and a trading entity? Does HoldCo own the trading entity? 75% of what?

Regardless, if plan to borrow to purchase 75%, there are significant challenges. The lender would want security interest on the whole. The 25% owner may not like that. If you hold the debt in a NewCo and then NewCo buys the 75%, how will you service the debt. Clear this with CPA and attorney and seller.

Good number of my deals are stock purchase.