Tips & Tricks for Structuring Deals
No two businesses are the same so no two acquisitions are the same either. Acquisitions can be complex and they need to be treated as such. At Volaris Group, we identify these complexities early on in order to run a smooth sale.
Different Types of Deals
- A Cash deal is a transaction in which the seller receives cash for their business.
- A Cash + Stock deal is a transaction where the business owner sells their business for a combination of cash and shares in the buyer’s company for a sum equal to the agreed-upon value of the company.
- An Earnout is a performance-based compensation scheme where a portion of the purchase price is dependent on the performance of the business post-acquisition.
- A Holdback is a portion of the purchase price that is withheld until, or on the condition that certain criteria are met post-acquisition.
- Stock options are a privilege that gives the seller the right to buy or sell the buyer’s stock at an agreed-upon price within a set period of time.
Deal Structures at Volaris Group
At Volaris, our deals typically involve a combination of cash payment, an earnout and a holdback.
The main reason we deal almost exclusively with cash payment is because cash is king. We understand that sellers seek liquidity and we have a strong balance sheet.
There are several different types of earnouts, each with their own merits and disadvantages. At Volaris Group, we tend to do earnouts based on growth in recurring revenue. This process is due to our buy-and-hold acquisition strategy and we value businesses based on recurring revenue. We seek to strengthen businesses long into the future, and recurring revenue is a key measure of quality growth.
Like most other acquirers, Volaris group exercises a holdback. This is a common industry practice that protects against financial discrepancies, pending litigation or ongoing contract issues.
Both the seller and the buyer need to understand the payment schedule in order to align expectations during the transaction.
Another consideration to make early on when structuring a deal relates to tax liability. Have a tax specialist to guide you through deal structure negotiations.