Working for a company with an option to buy later?

June 02, 2022

by a searcher from University of Virginia-Darden - Darden School of Business in Toronto, ON, Canada

Hi all,

Does anyone have experience proposing to work for a company with an option to buy it later? I'd love to hear your experience and how you structured it with the sellers.

I came across a small training company (in Canada) with an interesting product which doesn't have a lot of competitors. They have a decent customer roster consisting of large corporations. One owner is looking to exit and other has flexibility to stay for a while.

The Company is smaller than our target size, and has had a few down years during Covid. Before that the growth was flattish. I think acquiring it right now doesn't make sense as bank financing will be challenging (due to the low Covid years), and I want build more comfort that the company can grow.

Appreciate any advice.

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Reply by a searcher
from Austin Community College in Hollywood Beach, Hollywood, FL 33019, USA

This can be a consulting for equity play. Get them to pay you for a half day growth consult. You give them strategies they can implement immediately to make more money. Then make it clear you want to come in as a partner to help them grow the biz. and position it to sell. You can even help them grow through acquisitions. They give you up to 50% equity. Use clauses to guarantee payout when the business sells or goes public. Another clause to explain liabilities and one stating the option to buy out remaining equity after a certain time period. Using this route is one that is more profitable. If anyone wants to know more about this method or wants partner with me on anything like this,

feel free to reach out.

Reply by a professional-advisory
from Heinrich in Düsseldorf, Germany

Hi Samantha, I’ve worked with a client who implemented a structure similar to what you're describing. In this case, he joined the company as financial director (CFO-type role) alongside the existing CEO and acquired an initial 25% minority stake right from the start. The agreement includes call options to acquire the remaining shares (each tranche of 25%) in intervals of 2–3 years at a predetermined purchase price. In my experience, the most critical aspect, besides the usual legal considerations, is to define a fair and robust mechanism for the predetermined purchase price. This could be for example a fixed amount, a multiple of EBITDA, or a hybrid model including caps/floors to balance risk and upside for both sides. I think this kind of step-in/step-up model can be a great way to manage risk, both for you and the seller, while giving you time to get comfortable with the business and gradually take control. Best , Sven

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