Using new contracts to buy into the business

by a searcher from Thomas A. Edison State College

3 years ago

I am under an exclusivity agreement with a firm that has the potential to do federal government contracting. One of my mentors is looking to include my target company in a team to bid on a very large government contract. The bid is due before our proposed close date. Does anyone have experience using new business as part of a way to buy into a firm? If so, how did you structure it or what pitfalls did you encounter? Thanks in advance.

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3 comments

lender from Columbia University

Hi Micah - Agree with Scott's proposed approach. Earnouts are a 'market' way to mitigate risk and align interests while forging a path forward toward closing. A problem for another day maybe, but if you're planning to finance the deal with debt, make sure you work with a lender that's able to work with an earnout structure and show well to the sellers. The lender will probably restrict earnouts being paid out down the road unless the loan is in compliance. Happy to discuss more over PM, if helpful, and good luck!

3 years ago | like reply | 1 like

investor from The University of Texas at Austin - Red McCombs School of Business

Micah, I run a government services company and Scott is right. It can take the government months to award after a bid depending on how urgent the work is. Are you buying all of the business, is there an earnout? It'd be helpful to know how the deal is structured.

3 years ago | like reply | 1 like

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