I'm considering a deal where the seller is interested in keeping 20-30% equity stake in the company for a several years. Some questions and thoughts on this:
1. How do you structure a deal like this? Purchase X% of the stock/interest in the company, or sell the company completely with seller participating on both sides of the deal? What are the implications of each?
2. Deal success hinges on establishing a great working relationship with new business partner.
3. Pro: this shows confidence in seller's expectations of future growth.
4. Con: can't use SBA loan with such a deal structure.
5. Do you negotiate ahead of time the eventual sale of the remaining stock/interest?
Thoughts on deal where seller keeps minority equity stake
by a searcher from Massachusetts Institute of Technology - MIT Sloan School of Management
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PP = $10M
Debt = $6M
Equity = $4M
Seller would invest $1M of the $4M needed and own 25% and walk with $9M. you can negotiate a call/put right after X years for their portion.
Depending on corp structure, you could also buy only 75% of the existing entity and seller would retain 25%. This decision comes down to structure, liability and taxes.
Investors and lenders generally like it because it shows confidence in the business. Buyers like it because they will only need to find 75% of the original equity amount needed to close the deal.