Software Saas With Owner Earn-Out Loi Template?

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09/25/2020 Redacted Redacted

searcher Case Western Reserve University

SOFTWARE SAAS WITH OWNER EARN-OUT LOI TEMPLATE?

Found a SaaS business of interest and wondered if anyone has a LOI template they really like?

This would most likely be a deal with an owner earn-out of 20-30% over[redacted]months.

Any guidance appreciated.

1 like 77 views 3 comments

intermediary Cornell University University of Newcastle - 09/25/2020

I don't have a template, but usually the seller friendly ones (and actually much simpler than anything else) are ones that are purely revenue based. I usually advise sellers to push back against any earnout that mentions profit margin or similar (too easy for you to manipulate :). If you want to be really seller friendly, don't add a cliff, just have it be a pro-rated with a cap perhaps.

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searcher Case Western Reserve University - 09/27/2020

Thanks for the thoughts Einar. In your experience, have you witnessed seller finance properly incentivize the seller for an extended and proper hand-off of the business? In my initial observations, the current owner is more entwined in the business than he realizes. I feel he would want the new owner to succeed, but he's selling to have more time with his family and some times when owners get on the other side with most of their money....

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intermediary Cornell University University of Newcastle - 09/27/2020

Yeah I agree that an earnout is more aligned, but the trade off is that it’s often perceived to be “money you will never see” by buyers (and rightfully so in a number of cases)

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