Seller Retained Equity Buyout

May 16, 2024
by a searcher in Meridian, ID, USA
Sellers are retaining 10% equity of the business and we're funding the rest with a bank loan (non-SBA, but similar). What are some potential ways we could structure buying out the equity?
Our loan is a 10 year loan, but the sellers want to be bought out in 5.
in Stuart, FL, USA
from The University of Chicago in Chicago, IL, USA
I hear the folks who are saying it should be at FMV and that is one path that could work. However, the problem for the seller is that you are in control and the FMV at the time of your call on the 10% is out of their control. And if FMV is significantly lower than 120% of today's EV, do you want to exercise that call anyway? For the avoidance of doubt, it probably makes sense not to agree to a fixed higher EV if it is a put option (I may try to avoid a put option at all unless the seller is adamant).