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My business is being sold in combination with two other businesses. Partners own 100% of the other companies and 67% of mine. The likelihood that my valuation is not reflected appropriately in this consolidated arrangement is very high. Depending upon which metrics are used to value the respective companies, I could see a pro rata payout ranging from 3% to 13% of the whole. Discrepancy is due primarily to my company carrying 81% EBITDA margin while the other two businesses hover around 15-20% -- however, those companies generate much more revenue in comparison (for now). So the stakes are high and there are millions on the line here. I have no experience in this world and financial matters are not my forte. I'd be looking at paying 3%-8% of my collected earn out to the experienced representative. Is this type of arrangement normal? Assuming much complexity, my IP and future maneuverability are at stake, AND I'd be negotiating against family members (both partners), would this make sense? My gut says yes but I'd really appreciate honest feedback.

Mergers & Acquisitions

Deal Structuring

Answer

Alexander Crutchfield answered

For about 30 years I have been an agent, investor, advisor and director in many companies involved in mergers sales and acquisitions. I have seen many failures as well. The biggest mistake is that owners want to do it on their own without adequate advice. Adequate advice includes at least three different professionals-a CPA, a corporate lawyer and an agent. Dont use your book keeper, or the lawyer who did your will, or a stockbroker--they have the wrong skill sets. If you would like to discuss this Im available. Good luck.