Asset Purchase Agreement (APA), Bootstrapping, Earn-out, Transaction Agreements, Transaction Terms

Earn-Out Payments and Retention Payments

Earn-Out Payments and Retention Payments In my last transaction documents blog post – before posts on credibility and premium valuations as well as a post comparing free solo climbers and bootstrappers – I continued a section by section analysis of an asset purchase agreement with an intro to ‘Purchase and Sale of Acquired Assets; Assumption of Assumed Liabilities’. Today, we will discuss ‘Earn-Out Payments and Retention Payments,’ frequently a critical component of the total consideration in a deal. An earn-out is comprised of conditional supplementary payments incorporated…
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Net Working Capital Adjustment, Net Working Capital Target, Transaction Terms

The Working Capital Adjustment, Part III

The Working Capital Adjustment, Part III This week we wrap our net working capital (NWC) series with a discussion of a common pitfall that sellers should guard against when negotiating a working capital adjustment. A deferred revenue liability, if improperly considered in NWC adjustment negotiations, can be used to dip into a seller’s pocket post-closing. In Parts I and II of the series, we defined net working capital and identified the fundamental reason that it is important (Part I). We also introduced the philosophical rationale for including…
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Net Working Capital Adjustment, Net Working Capital Target, Transaction Terms

The Working Capital Adjustment, Part II

The Working Capital Adjustment, Part II This week we pick back up Part II of our net working capital discussion with a question: is it possible for a seller to drain his company of cash just before transaction close? If so, when and how can he do it? Last week I began this Agility Growth series with an analysis of the net working capital adjustment. In Part I of the discussion, we defined net working capital and identified the fundamental reason that it is important in a…
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Net Working Capital Adjustment, Net Working Capital Target, Transaction Terms

The Working Capital Adjustment, Part I

After months of negotiations have resulted in an agreement on purchase price, it’s easy to think that everything important has been decided in an M&A transaction. But that’s not the case. In my career, I have routinely found that many key terms involved in a deal between buyer and seller often come as a surprise to bootstrapping entrepreneurs. As a deal gets into serious due diligence, bankers and lawyers begin to circulate drafts of definitive deal documents. The documents are dense. So it’s easy to miss that…
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