It can be easy to focus only on the numbers as a business owner who is selling their business. These dollar amounts will represent some of the largest you’ve seen in your lifetime. “My business is worth X, I should get Z cash.” It’s understandable to focus heavily on the valuation of your business, but how you structure your deal will ultimately be just as important.

Your best path is to have your team clearly lay out what is important to you and why, and also what you recognize to be the risks in the deal. Having an experienced M&A advisor or investment banking team will help ensure that you arrive at the best possible outcome, even if it’s structured in a way you did not initially consider.

Here are a few scenarios to consider:

An Immediate Exit: Immediate liquidity is the top priority. You and your M&A team will likely only consider an offer that provides all cash at close. You are asking the buyer to assume all responsibility and liability for not only the future prospects of the organization but also the transition post-close. This scenario will allow the buyer to apply a discount for the increase in presumed risk, and the resulting valuation will likely be substantially less than a deal with more structure over a longer time period.

A Market-Based Exit: You and your team start the negotiation by stating your target valuation range, providing market research that backs up why you believe it is reasonable for your business. The buyer will compare your research against their own. If their research is valid, the buyer will likely calculate a similar valuation range and focus on structure and terms. What percentage will be earned out to ensure performance? What guarantees will be outlined about key employees and customers?

Future Growth Exit: You and your team explain to the potential buyer that your business is primed for future growth. If you have confidence in the projections provided, the buyer can agree to structure the deal to share risk and reward with you. There is usually a smaller amount of immediate liquidity that the business owner can receive in this scenario.

It’s key to remember what’s important to you and evaluate the options against those criteria. Deal structure, valuation, and terms for each of these scenarios will be different, and that’s ultimately a good thing. They’re creative solutions to a unique process. Above all, communicate your interests clearly to your investment banking team who will ensure you achieve maximum value in your deal.


About Madison Street Capital
Madison Street Capital is an international investment banking firm committed to integrity, excellence, leadership and service in delivering corporate financial advisory services to publicly and privately held businesses.

Over the years we have helped clients in hundreds of industry verticals reach their goal in a timely manner. Our experience and understanding in areas of corporate finance and corporate governance is the reason we are a leading provider of financial advisory services, M&A, and valuations. With offices in North America, Asia and Africa, we have adopted a global view that gives equal emphasis to local business relationships and networks.