Seal the Deal: Bridging the Pricing Gap

Not surprisingly, price is often a major obstacle in completing any transaction, including bad debt transactions. So, when prices are rising as they are currently and a sizeable gap exists between what the Seller wants/needs and what the Buyer is willing to pay, some creativity is necessary to help bridge the gap.

Sometimes, it’s as simple as initiating a dialogue between the parties so that each side can explain their position. The Seller can explain in more detail why the price is justified. For example, we just sold another portfolio x months ago at that level, the accounts are all homeowners or have assets etc. Similarly, the Buyer can explain why they’ve arrived at their price point. For example, we purchased another similar portfolio from another Seller and it didn’t perform to levels that justify the ask price.

In these types of situations, when neither side is willing to budge, we’ve often found it helpful to explore what we call a Revenue Share Arrangement. ?We recently used this method to close a transaction.

The Situation: Both Buyer and Seller were firm in their positions and unwilling to budge on price. The Seller felt the accounts were more liquid than the Buyer was projecting but they didn’t have the resources to penetrate the accounts and litigate where necessary. The Buyer was optimistic about the portfolio and wanted to build a relationship with the Seller for future business but hadn’t purchased anything similar and wasn’t willing to take the additional risk of the higher upfront price the Seller needed. We suggested an arrangement whereby the Buyer shared their liquidation rates with the Seller and once they recaptured their initial purchase price, the Seller earned a set percentage of the net recoveries until they’d received an amount just shy of their of their initial price target. After more dialogue, the Buyer asked for right of first refusal on future sales on the same terms so that the liquidation information they were sharing wouldn’t be used against them in the future transactions as they were taking the risk on this initial pool. They also asked to cap the time period of the revenue share so that they wouldn’t be sending the Seller checks beyond 12 months from the closing date. With a few additional tweaks to the Purchase and Sale Agreement, we closed the deal with both parties satisfied that they'd received a fair deal.

The potential number of variations of a Revenue Share Arrangement is limited only the imagination of the parties involved but it can and often does provide a workable solution for bridging the pricing gap and closing the deal.

About Runci Group - Runci Group has been an industry leader in facilitating sales and placements of distressed consumer and commercial receivables since 2005. The firm specializes in monetizing charged-off receivables (bad debt) and dormant (non-paying) judgments, typically by organizing auction based sales to our proprietary network of state, regional and national Debt Purchasers.