How can I contract to buy a company now but take ownership ~6mo later?
June 25, 2022
by a searcher from Northwestern University - Kellogg School of Management in Milwaukee, WI, USA
Hey Searchfunder -
I'm active duty military and exiting the military early in###-###-#### I'm looking at deals now, but it's hard to convince sellers that they should wait to sell their business to me in 6+ months rather than sell to someone else now.
I'm sure there is a creative deal structure out there that would allow me to sign a contract with the seller now but not actually take ownership/start operating the company myself until###-###-#### Ideally, this structure would still allow for SBA 7(a) financing. Further, the major risk I want to mitigate is contracting to buy a business that is still under the full control of the seller. Once the deal closes, our incentives may no longer be aligned.
Any ideas on how this could be structured? I'm open to all suggestions, no matter how crazy!
For context, I'm looking at deals with less than $2M in EBITDA, only in Wisconsin, and am industry-agnostic. My deal sourcing is primarily coming from brokers at the moment.
from University of Queensland in Brisbane QLD, Australia
Having said that, and this is not legal advice, you may wish to consider a Put and Call option.
In Australia this refers to a buyer's ability to purchase a business but at an agreed future delayed date, eg 6-12mths later.
Essentially, if at the agreed future date the buyer exercises this "Call" option to proceed, the transaction settles at that time.
This would obviously include ownership and control at that future point, but not before.
The seller is likely, in exchange for that benefit, to want some measure of protection, a "Put" option.
ie Essentially the seller can, at the agreed future date, force the buyer to purchase the business as agreed previously.
As all things are negotiable, you may be able to convince a seller to agree to a Call option only.
This Put and Call option may be called something else overseas but the legal and commercial concept will exist.
It is commonly seen in property purchases where there may be tax benefits for delaying a transaction.
But as with all things legal, the devil is in the detail which a good attorney can guide you through.
Obvious consideration would need to be given as to the sellers responsibility to maintain the agreed value of the business during the possible 6-12mth delay period.
And possible measures to alter the purchase price should the business drop substantially prior to the Call option being exercised. Or possibly if it grows.
That would help align both parties obligations towards a successful transaction.
Best of luck
from University of Virginia in Richmond, VA, USA