Structuring deals with junior partners staying on

searcher profile

June 03, 2022

by a searcher from Pennsylvania State University in Philadelphia, PA, USA

Hi everyone, has anyone had experience structuring a deal to purchase a majority shareholder out from a business, while a junior partner or two would like to stay on on retain their equity? Using debt to buy a majority of the biz will obviously lower cash flow to owners, so I'm curious if people have had luck financing deals like this, and if there are any creative structures out there that can create a win for the buyer and win for the legacy partners.

Thanks,
Shawn

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commentor profile
Reply by a searcher
in Toronto, ON, Canada
Banks actually like deals where key members keep equity, shows they have skin in the game. Most of the time a bank wont finance 100% of the deal. Depending on EBITDA and industry, expect senior funded debt to be around 2-3X with the bank requiring 10-30% equity.

A win-win structure could be###-###-#### % paid on close, 20% vendor note, 10% legacy partner equity roll)

Good luck in your pursuits.
commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I am assuming a) You do not mean "rollover equity". "Retained Equity" is different than "Rollover Equity", and b) You plan to use new bank debt.
What you are proposing cannot be done (SBA or non-SBA, small or large).
I am suprised with other answers. I hope I have not misread your question.
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