Downside protection for performance commitment

by a searcher

1 year ago

Hi all, 

We are pushing for a deferred payment structure in which we would like to input a downside protection mechanisms relating to the future performance of the company. An option we are considering is an adjustment to the price.

It would be appreciated if anyone can share the experience in similar structures.

TIA,

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4 comments

professional from Villanova University - Villanova School of Business

Absolutely, both of these are great ideas. I perhaps incorrectly assumed the deal isn't in the US based on your location. If the deal is in the U.S. and you're looking for an SBA loan, generally a clawback would be the way to go. You could also minimize the downside risk by getting contracts in place or having the seller retain or rollover equity with an option to purchase the additional equity in the future at an agreed upon calculation with a maximum of today's purchase price.

1 year ago | like reply | 0 likes

lender from California State University, Sacramento - College of Business Administration

As Justin mentions Earnouts aren't eligible. But you can put a forgivable claw back on a seller note based on maintaining historic performance.

1 year ago | like reply | 1 like

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