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Additional Posts in Succession Planning: Buy/Sell Practice
Selling structured book of autocalls
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Yes, the most common threshold for an adjustment is based on 90% retention of the revenue, any more than that would be adjusted. If there is an adjustment, it is usually on the one year anniversary following closing. The adjustment mechanism is directly correlated with the purchase price and other payment terms, if the seller is expecting a significant premium then it would be very common to see and adjustment clause or two. But adjustment clauses are happening less and less frequently. More than half of the deals that took place last year had no adjustment clause built-in
Hey you seem like the subject matter expert here. Is it common instead of doing the 2-3x trailing 12 rev, to do succession planning based on equity ownership?
And have a reduction clause that reduces the price based on clients retained after year 1, 2, and 3. The seller wants a maximum reduction of 10%. Is this normal? The book of business is heavily weighted with a handful of clients. Their proposal seems ridiculous to me
Typical clawback terms for an RIA for example would be retaining 90% of the revenue, which accounts for client attrition, market corrections, etc. Even if a seller wants “all cash” our banks can work with us to provide you all the funds and then hold some back in escrow until the adjustment date has passed
Our firm can handle the valuation and has the agreements. Much more effective to use an M&A consulting firm like ours that knows deals, financing and our industry to build what you need using established contracts and let your attorney and accountant review rather than draft.
Is there adjustments made for market corrections etc? Also, when it comes to third party legal issues are there any recommended firms out there for valuation and generating the applicable legal docs/financing? My firm does it but if seems like it might be a conflict of interest for one of the parties involved ...