Business Acquisition Deal Structure

Definition

A set of terms and conditions which specify how a small business acquisition is to be concluded.

What It Means

Deal structure combines a set of terms that make for a successful business ownership transfer. The key objectives here are to:

  • Provide the seller with desired remuneration for the business.
  • Ensure that the business buyers can operate the business in line with their financial goals.

Business purchase price is perhaps the best known part of a small business purchase agreement. Yet no financially sound deal is made on price alone. Typically, a number of important terms must be agreed upon as well:

  • Amount of business buyer’s down payment.
  • Seller’s financing terms.
  • Outside lender financing terms.
  • Whether the transaction is structured as an asset or stock sale.
  • Non-compete and consulting agreements with the outgoing ownership and management.
  • Whether part of the business purchase price is held back in an earnout arrangement.

In addition, a number of financial requirements affect the viability of a deal structure:

  • Required compensation for the new business owners.
  • Capital expenditures anticipated in the near term.
  • Payback period on the business buyer’s down payment.
  • Debt service coverage ratio expected by the lenders.

As you can see from the above discussion, both debt and equity capital are used in structuring a small business purchase. The cost of such business acquisition capital is a key factor which sets apart failures from successful deals.

ValuAdder Deal Check calculation enables you to quickly construct a number of business acquisition deal structures which account for all your financial requirements at once.

In addition, you can verify a deal structure to ensure that the business available cash flow is sufficient to support all the terms of the proposed deal.