Creative strategies to acquire companies with lots of inventory

by a searcher from University of Colorado at Boulder

5 years ago

Hi everyone. I'm evaluating a potential target in the e-commerce space. The company has inventory on hand equal to the asking price of the company. Put another way, the company will cost 2x the asking price when inventory is included. 

Building the additional debt load necessary to purchase the inventory into the model compresses the margins and hurts the cash on cash returns of the investment. Does anyone here have experience or tips on how to creatively structure the deal so that the inventory doesn't have such a material impact on the economics of the transaction? I'm basically looking for a way to build the inventory int0 the deal without taking on the full debt load for taking on the inventory on day one.

8 likes
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21 comments

member from Massachusetts Institute of Technology - MIT Sloan School of Management

Is the seller willing to keep ownership of the inventory and enter into an agreement with you whereby you’ll buy the inventory from them over time as you need it?

3 years ago | like reply | 1 like

searcher from Indiana University South Bend - Judd Leighton School of Business and Economics

You shouldn't have to bail them out of their poor inventory management. It should be heavily discounted, some to $0. We just completed a bolt on where we reduced their purchase price by 25% of book inventory value based on slow moving and obsolete inventory.

3 years ago | like reply | 0 likes

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