Netting in the Best Deal – Largest may not be the Best

Jan 22, 2014 by

Netting in the Best Deal – Largest may not be the Best

Acquisitions and Buyouts are common in modern day businesses with various reasons – to eliminate competition or to catch up to competitors or simply because someone has enough cash lying around. But, as an owner of a small company which received an offer from a big brother, would you like a deal from X which gives you $ 20 million or from Y that nets you $ 15 million? An immediate answer is to go with the highest paid bidder. But such a decision may not be the best.

Cashing in Upfront

In most cases, the buyer will not offer all the money upfront but only a percentage of it, the rest pertains to certain conditions being met. Check how much you receive upfront and decide accordingly. A higher paid offer might give a very small amount upfront.

Getting paid full

You are often required to meet certain conditions to receive the full sum i.e. your product lines remains same, your staff sticks around, sales figures meet expectations, etc. The highest paying buyers may entice you with amount but may have way unrealistic conditions to get that entire amount.

A very taxing Tax
Always read the offer document very carefully and the pertaining tax amounts. While the highest bidding buyers offer you a great amount, the associated high taxes might make the actual amount very meager. A 40% tax on 15 million over 23% tax on 10 million nets you just an additional 700k that may not be worth it depending on the conditions.

Working with them

It is often required to work with your new owners before getting paid in full. However since you are no longer the boss, you will get controlled and the experience may not be good. Further your business might get stamped by their name without any identity now.

Thus, it is not always the best to go for the highest bidder but rather carefully examining the offer details to get the best deal.

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