If you are in the midst of an M&A deal, you have probably already gotten a business valuation from an M&A intermediary. The deal cannot get off the ground before both parties know what the business is worth.
Unfortunately, even with a professional valuation, both parties may not agree on the concrete value of the business. A few options exist to help bridge the valuation gap.
The earn-out works well if the seller believes that they can back up their claim. In choosing an earn-out, the seller only receives their asking price if the company meets certain financial goals in the future.
Paying with Stock
The buyer can use stock to pay for some or all of the company. If the seller believes that he or she can sell the stock easily, then this may be a great choice for bridging a valuation gap. Meanwhile, the buyer does not need to borrow as much money when using stock.
The seller can finance the amount in the valuation gap in order to appease the deal. Sellers can earn a high interest rate on the negotiated portion that they finance, while the buyer is not required to have all of the money up front.
If you have any questions during the M&A transaction, contact a broker at George & Company today.