Deal Structuring and Valuation
Deal Structuring allows the buyer of a business to shape the deal to their advantage. It can result in a large transfer of value from the seller to the buyer at the closing. M&A negotiations are tense and usually involve back and forth around the price. The key to doing the right deal is buying at the right price with the right structure. With strong deal valuation and structuring skills, you can creatively frame a deal the seller will buy into without paying the highest price or the most cash at close.
Deal structuring also relates to the financial structure used to raise acquisition financing. Bespoke deal structuring is key given the different forms of capital and unique growth visions for each company. Some deals are best financed with different layers of debt capital whereas other deals are best financed with a large amount of equity. Deal structuring is a make or break step in a capital raising process as it aligns long term vision, capital, flexibility and risk. With the risk inherent in acquisitions, it is important to work with a strong investment banker well versed in the art of deal structuring. It will position you for long term success and mitigate negative outcomes.
How Expert Deal Structuring Balances Risk Between Buyer and Seller
An expert deal structurer, one with strong experience can do this. When implemented properly, deal structuring allocates risk from the buyer to the seller, through using:
- Performance based earn-outs instead of cash at closing.
- Long term seller notes instead of cash at closing.
- Purchase price and indemnification escrows.
- Requiring working capital & cash to be part of the deal.
- Requiring rollover seller equity in newco.
Frequently Asked Question
Seller notes usually are 10% to 20% of a purchase price for a middle market deal.
This is not accurate. Many acquisitions can be 100% financed with mezzanine debt and other forms of structured debt.
It is a mix. Companies with strong M&A backgrounds can handle it on their own. Companies that are new to capital raising and acquiring always should bring on an investment banker
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