Preference in securing transition

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by a professional from Hobart and William Smith Colleges
in Chicago, IL, USA

3yrs ago

Preference in securing transition

Hello Everyone,

Reading up on the deals of the year and I was curious to know your thoughts.

In a world where you could either have an earn out provision or an escrow provision, but not both- which would you choose?

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reply by a searcher 3yrs ago
from University of Virginia in Atlanta, GA, USA

I would say structure your deal to accomplish what you want to accomplish. If you just need the owner to stay for transition, hold some money back until he's held up his end of that bargain. If you want to incentivize the owner to stay engaged in the business and grow it together as partners, get him to keep an equity stake or equity-like security. If you're try to ensure that the owner thinks growth forecasts are attainable, give him an earnout. If you want to hedge against hidden risks and downside use a seller note. These tools all accomplish slightly different things and align incentives in slightly different ways.