Seller concerns about new assets purchased prior to deal close

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by a searcher
in Utah, USA

3yrs ago

Seller concerns about new assets purchased prior to deal close

Hello Search Community,

I'm negotiating an LOI with a seller and they have been growing at a lot in the last year and expect to continue to do so this year. In order to grow, the company needs to purchase new assets. The seller has repeatedly stated that they "are not comfortable paying for new assets to hand them over at closing". e.g. purchasing new assets during the due diligence process.

Has anyone dealt with this? How do you approach it with the seller and are there any deal terms that could be included to assuage their concern?

I have already proposed an earn-out for new contracts (e.g. the revenue that will come from these assets). They do not feel this will garner them enough return. I also don't want to them to stop investing during the deal process.

Thanks!

1 Like

145 Views

reply by a lender 3yrs ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

I would agree with the other feedback contained here. I have seen deals completed where the equipment is included in the purchase price, the buyer uses operating leases, you as the buyer rent the equipment back from the seller with maybe a future option to purchase, or some equipment is excluded from the sale. Just be sure that if you have to pay for the equipment that your financing can support it. If you need to discuss I am more than happy to get on a call to look at options. You can reach me here or directly at redacted Good luck.

reply by a professional 3yrs ago
from Simon Fraser University in Vancouver, BC, Canada

yes I believe 90 days is fair. The seller has an incentive to try and extend the horizon, but in situations where there is growth like this, I would expect a shorter time frame to be more reasonable. I would start at the 90 day WC PEG and PPE balance, and then I would ask myself, how much revenue can we do with this? For this, you can try and assess revenue/dollar spent on capex, look at the revenue from the previous year, was their ideal capacity? if everything is operating at standard levels, what can we obtain? Once you have an idea, you can then begin to see just how much in extra assets you are receiving, and how much you will need to compensate for that. Also, one point is try and see how much life is left in the old assets, it might be a case where they have depreciated a significant amount and some of the new assets are really just replacement assets