Seeking Input on Deal Structure: Employee to Owner

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by a searcher from University of Arkansas (System)
in Fayetteville, AR, USA

2yrs ago

Seeking Input on Deal Structure: Employee to Owner

I’ve been offered the opportunity to lead sales for a small business and acquire it in 3-4 years. The current owner intends to stay involved post-sale but in a reduced capacity.

While I trust the seller, I want clear terms for the purchase. We are in the early stages of conversation.

Seeking input on potential deal structures and any possible risks. Grateful for the group’s advice!

1 Like

214 Views

reply by a searcher 2yrs ago
from Bentley University in Exeter, NH 03833, USA

Agree with Anthony above. I have seen this turn out poorly multiple times. If you pursue this then call all the deal structure for the future transaction in a contract now, and signed. Legit a purchase and sale for THE date 3-4 years from now, the formula that defines the valuation, etc. etc. etc. You do not want to leave this open-ended. Remember, if you grow EV in the next few years, or the seller gets to be hands off while his business spins off more and more cash, then not selling becomes attractive for him/her. Seller has you as an operator. You have no equity - no distribution. Seller is in growth and cash harvest mode and getting to step back some from the business. Promises do not work. Contracts do.

reply by an intermediary 2yrs ago
from The University of Chicago in Chicago, IL, USA

There are million more variables in purchase vs. an employment agreement with a promise of an option to buy. As a result, very rarely, such arrangements have successful outcomes.
Consider the employment with an understanding seller will give you the opportunity. If the business winds up dependent on you, then you will have leverage later.