M&A Imagineer: The Forever Money Pledge Strategy
The smaller the “business” the less attractive it may be to potential buyers within the trade, other entrepreneurs or investors (of one kind or another)?? It may be only surviving by the skin of its teeth, with the saintly owner/manager efficiently running the show to perfection with their own unique “system” but scant financial rewards?
The issue for the owner/manager is that they invested heavily in the business; it is their “pension”; if they are lucky they may have limited access to a private pension with an element of State pension/benefits on top at retirement?? Whilst they continue running their enterprise, it generates an income; but once they stop working (for whatever reason) that income also stops.
Under these circumstances in reality a serious and genuine business acquirer would have little interest in making an acquisition, especially if the financial figures were further manipulated by a business transfer agent – trying their utmost to paint a rosy picture in a garden full of weeds?
Assuming that you manage to generate interest from someone (connections of connections) actually interested in acquiring your firm there are two related strategic options:
1.????? The buyer willingly agrees to pay a fairly negotiated “premium” for the business.
2.????? The seller agrees to accept less for the business today.
Mutually beneficial terms are agreed for the proposed business acquisition, and any deal structured sympathetically.? However, in the former case (1.) the extra “money” paid is released incrementally over a period of years – essentially as a small top-up income to any public or private pension arrangements, that is, whilst the seller remains alive (and their immediate spouse and/or minor dependents, if any, until they come of age)?
In the latter case (2.) the seller takes less money off the table today, and the “discount” being likewise treated as a supplementary monthly payment over a longer period, but with a slightly higher income to complement any public and private pension arrangements.
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Such “time” could be fixed for a number of years, or in perpetuity, that is, for as long as the seller and their lawful heirs are alive.? Although such monthly payments are to be ex gratia a formal arrangement within the acquisition legal documents may help to give relative peace of mind to all parties?
An element of the agreed “consideration” could be rolled-over as equity so that the seller may further benefit from any subsequent enhanced business value – due to the expertise of the buyer and prevailing market conditions.
Something to ponder; as you try your utmost to assist SMEs during challenging economic times?
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Kip
The EBO Guy
…Acquiring businesses for employees
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