Seller's Note Guarantee
November 17, 2023
by a searcher in Montreal, QC, Canada
I'm about to sign an LOI and there is one sticky point that seems to be an issue that could derail the deal. The vendor has 2 friends who sold their businesses and for some reasons never received the money from the seller's note. For that reason he was unwilling to do a seller note at all, but has since changed position and agreed to a 25% seller's note.
However, he is very worried and wants some kind of insurance or guarantee he will touch the seller's notes. I'm in Canada and he's asked to have the seller's note guaranteed by EDC (Export Development Canada). Apparently they have a new product, an insurance, to cover seller's notes. It's been officially announced, but it's not in place yet, no one knows when it will be or how much it will cost.
I don't want to delay this deal by a few months just to wait for this product to come out and I'm not sure I'm willing to pay an insurance for the seller's note either. So I was wondering if any of you have faced this before and if you seen creative solutions to solve this problem?
Thanks,
from University of Tennessee in Nashville, TN, USA
There are no guarantees in life except change. As a last resort, you could offer him preferred equity with buyout provisions instead of debt. This works more favorably for the Buyer since it decreases the D/E ratio and allows a senior equity position to common shareholders. Your terminology can be modified accordingly if a different legal structure is selected.
from University of Oxford in 日本