M&A Financing: Examine the All-Important EBITDA
Ways to Solve Valuation Differences in an M&A Negotiation
M&A Valuation: Measures of Return

Resolve M&A Valuation Differences: Hire the Seller

To get past the valuation impasse, Buyers are often willing to keep the Seller on as an employee of the company or as a consultant. This arrangement is beneficial for both Buyer and Seller. Buyer receives the benefit of Seller’s expertise and Seller receives a stream of income for that expertise.

Offer a consulting contract to Seller in the M&A deal

Buyers can provide Sellers with added dollars is by including a consulting contract in the purchase agreement. Buyers have the benefit of the Seller’s advice and counsel, and Sellers get the benefit of increased deal value.

Sellers, consult with your tax advisor if a consulting contract is on the table. Pushing proceeds into a consulting agreement may result in those dollars being taxed at a higher marginal income tax rate rather than the lower capital gains rate.

Provide a stay bonus to the Seller in the M&A deal

If a Buyer wants a Seller to stay on board for some period of time after the deal closes, offering Seller a bonus for not leaving can be another way to bridge a valuation gap. Buyer gets the security of knowing he won’t have to pay the bonus if Seller resigns early, and Seller knows she’ll receive added money by simply staying put.

Buyers, consider including a clause in the agreement stipulating that you can fire the Seller for cause, such as theft, embezzlement, conviction of a felony, and so on. That way, if Seller engages in egregious behavior that harms the company, you can limit damages without having to pay out even more money to the person.

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