Latest Posts

5 Key Deal Points for Sellers in an M&A Transaction 

February 23, 2021

Hyde Park Capital
John Hill, Senior Managing Director

February 20, 2021

There is a lot more than purchase price that is involved when selling your company. We often talk with our sell-side clients about 5 key points of consideration that are involved in an M&A transaction.  These points include purchase price, structure, terms, fit and certainty of close.

1. Purchase Price.

Purchase Price is the most obvious consideration but can be misleading depending upon the other key points. Buyers can be misleading when talking to sellers about deal value. Rarely are deals simply all cash, all the money upfront and the seller can walk away from the company after closing. An offer can sound very attractive but actually may be very different than what it appears initially.

2. Structure.

Deals can be structured in many ways. Typically, buyers are trying to mitigate risk through structure. We see private firms require equity roll-over as part of a deal structure for example. They take comfort in having a seller remain a large shareholder so that the seller remains interested, financially incentivized and motivated in the future success of the business. Some buyers will agree for both seller and buyer to hold the same class equity security, others will want a preferred or senior equity position to the seller. Corporate or strategic buyers will more often buy 100% of a company but look for an earn-out structure where they tie meaningful amount of the purchase consideration to the future performance of the business.

3. Terms.

There are myriad deal terms that can come into play when negotiating a transaction and very often the buyer will try to wait to bring up terms until later in the process when they feel they will have more leverage because the seller may have deal fatigue, be eager to close and more flexible. Terms can include issues such as shareholder rights, control provisions, what are your preemptive rights if more capital is invested or another company is acquired and there is potential equity dilution, or additional senior executives are hired. Plus, there are indemnity issues that may or not be addressed with rep & warranty insurance solutions or escrow requirements.  The list goes on. Deal terms can be numerous and complicated and matter and should not be overlooked.

4. Fit.

At Hyde Park Capital we mainly sell large private family and founder owned companies. When considering the legacy of the business it usually matters to our clients what happens to the company post sale. For sure it matters if they are remaining equity holders and are supposed to continue to manage the business. Buyers come in all personalities and have different approaches and cultures. Some buyers are collegial and casual; some are sharper elbowed and more formal. Some buyers are more hands-off and mainly count on managing the company thought quarterly Board meetings.  Other buyers may have operating partners that they intend to become very involved in the daily operations of the company.  Corporate buyers may keep a business stand-alone or may fully-integrate it into their existing business.  Unless a seller is walking away from the deal post-close, the fit and how they feel about the game-plan and working in the future with the buyer’s team will have a lot to do with which deal they decide to accept.

5. Certainty of close.

The last point is not trivial because all the time and effort that leads up to identifying and negotiating a potential transaction with a buyer can be for naught if it does not close. We spend a lot of time trying to determine the likelihood of a specific potential buyer actually closing. Our firm has longstanding relationships with many buyers, and they will often candidly share their concerns with us when they might not be as direct with the seller. We may attempt to establish milestones around certain deliverables such as when the financial due diligence (QOE) by a third-party accounting firm must be started, or when we are to receive draft legal documents. If third party financing such as bank debt is required, this can also impact timing and create additional uncertainty. It is important also to understand who the decision maker is involved in the transaction and the process to get to final approval.

Copyright Hyde Park Capital 2021


Categorized in:

This post was written by Elevate, Inc.

Comments are closed here.

Get Connected

Join our networks and stay in touch.

Read Our Testimonials

Hear what our customers have to say

“Aakash Patel, Chris Melvin and the rest of the Elevate team simply delivered. The connections Aakash made led to valuable relationships for me and new clients for RevStar. You can’t fully appreciate what Elevate can do for your business until you experience it first hand. I personally recommend their services to anybody looking to grow their network and business within the Tampa Bay community.”

Ken Pomella, PMP – CEO, RevStar Consulting

“If you’re looking to dive into the who’s who of Tampa Bay, Elevate, Inc. is the only way to go. Elevate worked closely with Tampa Bay Plumbers to help us get our foot in the door with the right business and community circles to help us grow. We appreciated Aakash Patel & Chris Melvin’s professionalism, attention to detail, and willingness to go over and above to provide us a quality service. The contacts through Elevate are numerous and professionally beneficial and the staff is always available to us. We enjoyed working with the Elevate team and will definitely keep them in mind for our future business needs.”

April Diemer – Tampa Bay Plumbers

“Working with Aakash and his team at Elevate was a great fit for our growing organization. His team helped us connect with key influencers across the region and identify opportunities. Together you work to define your goals and who you’re targeting and through their connections and network they can make warm introductions to the decisions makers you need to connect with.”

Chon Nguyen – Founder & CEO, Newgentek

“Elevate, Inc’s. business relationship building process and their specialized one-on-one client service has opened doors and created potential opportunities that we wouldn’t have been able to create on our own. If your business would benefit from business relationship building introductions, I highly recommend Elevate, Inc.”

Gary LoDuca – Founder & Owner, Thoughtful Advisors – 401(k) Plan Designs