As you all know, most deals fall apart because companies CEOs/owners (and/or the investors already in the “deal”) are not realistic when placing a value on their respective companies. When there’s a valuation difference between what a buyer thinks a business is worth and what the seller expects to profit, an earn-out can bridge that gap.
Here’s a few pointers on how to make a deal that’s good for both parties.
What’s the value of your business? That depends on whom you ask. Ask potential buyers, especially when they’re being cautious in tough economic times, and it might not meet your expectations.
Negotiating a sale of a privately-held business is never a breeze – and it’s much less so in a down market in which there is little competition among buyers to drive up the multiple. When a seller’s expectations aren’t being met by potential buyers, including an earn-out provision in the acquisition contract can help narrow the price-expectation divide.