Seeking Deal Structure Advice for Manufacturing Deal in Canada

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by a searcher from University of Windsor
in Vancouver, BC, Canada

2yrs ago

Seeking Deal Structure Advice for Manufacturing Deal in Canada

I am currently in pre-LOI negotiations with a broker for a manufacturing acquisition in Canada with an enterprise value of sub $2M. The seller is open to both an Asset and Share purchase but prefers a share structure. The market value of the company's assets is around $200K.

I would appreciate it if you could share your thoughts on the proposed deal structure, or suggest a new one, and offer negotiation strategies that have been effective for you in the past to get the seller to accept the LOI.

1- Asset Purchase: $2M purchase price including WIP, 15% VTB amortized over 3 years, 5% in escrow hold-back account for 18 month.

2- Share Purchase: $1.9M purchase price including WIP, 15% VTB amortized over 3 years, 5% in escrow hold-back account for 18 month.
Thanks!

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reply by a searcher 2yrs ago
from Harvard University in Toronto, ON, Canada

I second your opinion. No further inputs. One of the outcomes I notice with searchers is that they over complicate deal structures. For a deal this size I would not do so. It is not worth the time. A straight vtb and cash at close are ideal

reply by a searcher 2yrs ago
from University of Calgary in Calgary, AB, Canada

Couple of thoughts - as others have said, vendors prefer share deal for tax purposes in most cases to accesses lifetime capital gains exemption in Canada; asset deal gets you some tax base in implied goodwill/stepup asset values and reduces liabilities from corporate. Delta on the two numbers above not substantial. I would focus on what you think the business is worth and how it models out for you, not trying to drive your valuation to accomodate after tax proceeds to the to the vendor. We were deep into a past transaction that uncovered substantial tax planning had been undertaken during diligence by vendors that wasn't shown in Teaser or CIM.