Preparing a Business for Sale – Deal Structures

By Peter Watson, Prism Corporate Broking

Earn-outs have a bad reputation – and one that is often well deserved. If a buyer can wriggle out of paying more , they will.

Deferred Consideration presents fewer difficulties, but the old adage of possession being 9/10’s of the law remains true. If there is an opportunity to claim on the Warranties, it is much easier if you can merely deduct the amount  from a forthcoming payment

What then can keep the buyer honest?

For most SME’s the key is the owner manager themselves.  If you remain critical to the business it is much less likely that a buyer will delay or dispute an intended earn out payment. 

This does not negate the benefit of good financial and legal drafting, to ensure clarity and improve the chances of being successful in a future dispute, but alone this is insufficient.

In the current climate, the final consideration is a balance of the three, possibly with some Share exchange if the acquirer has a market in their own shares.

Cash remains king, and though there are still some all cash deals to be had, there seem to be fewer and fewer monarchies out there!

Down a PDf version of Deal Structures.