Hi Everyone! I am considering a deal where the owner is stepping down because she does not want to continue scaling the company. The asking price is very high, but to make it an attractive offer I was considering an earn-out offer. I see that the seller does not want to miss out on the upside a new owner can create, but when is an earn-out appropriate versus when is the owner being unrealistic? What are factors you have considered when you proposed an earn-out?
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That said, call me a radical, but do what you need to do. If this is the right target, go for it. Just be aware that if the seller's upside is solely dependent on your efforts at scaling the business, it might not be much of a carrot. After all, the seller has no control over whether such targets at met.
If the seller wants to benefit from the growth of the business in the years ahead, you can offer the seller equity. If the seller refuses and wants a larger purchase price, perhaps the seller isn't all that interest in future upside after all.