Self funded search: alternative deal structures

by a searcher

6 years ago

In my view, performing a self funded search enables the possibility to come up with alternative deal structures. I'm giving two examples here below. Would love to get remarks on them from the community or hear other alternatives that have been used in practice.

1. There could be an option to close the transaction after a 'defined collaboration period' of six months for instance. During this period, the buyer can get hands on experience to get to know the company much better and the lower 'acquisition risk' might be 'compensated' in the final SPA terms.

2. Some sellers may want to retire from day to day management and remain active as a shareholder and hold a board position. Although this situation can have negative side effects (clear segregation of duties is required), I can see some very positive effects such as the 'mutual interest' of the seller and buyer for the continuation and growth of the company.

Regards,
Gijs

33 likes
442 views
9 comments

searcher from Brown University

One common learning is that the best opportunities are with businesses where the owner does not necessarily want to sell. To get around this, I spoke with one "searcher" who structured a consulting contract to build a relationship with the owner that he ultimately turned into a COO role with salary and an equity stake. The equity grew over time at milestones and the equity had different hurdle rates depending upon the eventual eventual sale price of the company. Given his background in investment banking and private equity, this aligned to his skill set and worked out nicely. A different structure that allows you to get great experience under your belt.

5 years ago | like reply | 2 likes

investor from Carnegie Mellon University

Yes, 1202 is very tax efficient.

6 years ago | like reply | 1 like

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