Retention of Business Units in the Seller’s Business - Occasionally the Seller will keep certain business units and sell the other to a Buyer. Think of an alarm company that also does fire systems servicing. The Seller might sell the alarm contracts but keep fire servicing. Sweet Equity to Key Employees - This is actual equity given to key employees from the Buyers shareholding. Generally, this is non- dividend bearing and means that the key employees that take the journey to the next exit (i.e. in 5 years) get a substantial payout. This is used extensively by Private Equity firms and we have seen 10%, 20% even 25% given. The key to this is ‘leaver clauses’ (as in leaving the business). These come into effect and the employee loses the shares in pretty much any situation where they have not worked through diligently without issue to the next exit. This is a very powerful motivator as the people feel like shareholders from day 1. Maybe more than a stock option plan or growth shares, which most people will put in the category of a lottery ticket. Considerations When Constructing an Offer Seller Orientation/Motivation - The first thing to consider when constructing an offer is how the Seller views the transaction. Are they very keen to sell (motivated Seller), do they have a timescale, do they need the money urgently or do they have plenty of money and plenty of time and just want a good Buyer for their business? This greatly affects how much the closing payment needs to be, how deferred will be paid, the appetite for risk, the plan for them existing the business, etc. Valuation - What does the overall value of the business look like based on the valuation model (see previous chapter)? Availability of Equity Funds - How much money do you as the Buyer have to put into the transaction? Keep in mind that you need to
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