The headline of a transaction is a number: the company sold for so much. But that number is almost never what the seller receives in the bank. Between the price that gets signed and the money that arrives there are at least six pieces that change it.
The six pieces
The structure: whether shares or assets are sold, and the tax implications of each path for the seller. The price mechanism: whether the price is fixed at signing with later adjustments, or settled with closing accounts. Net debt: everything subtracted from enterprise value to reach equity value, including items the buyer will treat as debt even if the seller does not. Working capital: the target level agreed and the adjustment, up or down, calculated at closing. The earn-out: the part of the price that depends on future results the seller no longer controls. And the escrow: the amount held back for one or two years as security for the seller's representations.
Same price, different value
Two offers at the same headline price can have very different present values for the seller. A ten-million offer with 70% at closing, a three-year earn-out and a 15% escrow is not worth the same as nine and a half million in cash at closing. Comparing offers by the headline is the most expensive mistake we have seen otherwise well-advised shareholders make.
That is why, when we present offers to a client, we present them translated: how much money, when, under what conditions and with what probability. The big number is the starting point of the negotiation, not its result.
Andrés Proaño · Managing partner, Axioo Financial Consulting