Common Deal Structures - Acquire.com Academy

Okay, in this video I'm going to talk about how to structure a SaaS acquisition deal that makes you and the buyer happy. So as a founder, the more you're educated on common deal structures, the better because you widen your buyer pool by doing that. I sold a business for all cash. Not all startups have that ability. And so, you know, I could have taken an offer with, you know, some sort of earn out with another firm, but that was important to me. And so these are some of the common deal structures that I see on Microacquire. So the number one is basically the first one I just mentioned, which is the clean break. All cash up front. This is typically what most of the serious private equity buyers will offer on microcquire, which is awesome, you know, quick due diligence, cash up front, really making it as simple. This is the simplest deal structure typically number two, I'm calling this one the Gap Closer. So this would be a down payment plus financing. So I like these ones. These ones can dramatically increase the buyer pool for your startup, especially if you're looking to sell it quickly and move on to something else. Have it finance another startup that you're working on. So what this means is you meet with a lot of buyers and they may not have, you know, the amount that you're looking for your startup up front, but they love your startup, they want to acquire it. And so what you'll do is you'll structure a deal that's maybe 75% cash up front and then 25% as a. Basically it's called seller financing where they pay you a monthly payment that you determine over a fixed period of time, be that six months, three months. I recently acquired a SaaS, a Shopify SaaS application for around 80,000. And we agreed to 50% up front and then another 50% after 90 days. And that really de risked the deal for me as a founder where as an entrepreneur where I have them for 90 days. So during transition I know that they'll be available for help if anything goes wrong. And so I felt really comfortable moving forward with that, even paying a premium potentially on a multiple, if a deal is structured like that. So you can use this deal structure to increase the value of your startup if you're willing to work with a buyer and you trust them and definitely lock this down with proper legal documentation and get legal counsel if you do do a structure like this. But this can dramatically widen the buyer pool and then more importantly potentially increase your financial outcome for the business. So this is a PDF if you want the full version, but I'm just going over this from a high level. So number three would be the deal saver. So this is down payment plus financing plus earn out. So essentially you're selling the business, they're going to give you 50% up front, they're going to finance it over a period of time, plus there's an earn out. So this basically means that the financing is usually dependent on the business continuing to perform as you have advertised it. So if you say that every month for the past 12 months, this business has generated 100,000 in profit or revenue, the buyer is going to want to see that in some cases. So if you're not getting a lot of offers from different buyers, this could be a structure that really your job, when you're going to negotiate with buyers and discuss deal structures is sometimes to offer them upfront. Do you offer seller financing? Are you okay with split payment terms or creative deal structures? And so this one could be a good one. Generally you want to start with, you know, all cash. That's best in my opinion, seller financing, second best. And these aren't rated in like order of best to worst, but down payment plus financing plus earnout could definitely work. Down payment plus equity plus financing. So what this essentially means if the buyer has a proven track record of 10xing companies, you could potentially have a chance to be a part of that. Maybe you're selling to a private equity firm or a strategic buyer that has huge plans for your startup and you've built a great product. Sales and marketing isn't your expertise. Maybe they have a huge audience. And so in this structure you would typically have a lower down payment. So for example, you'd sell the business for 25% up front, they would give you some equity and that equity would usually be weighted a little bit higher than the other deal structure I mentioned in the other slides. And then some additional financing based on maybe certain goals. If they, you know, 100x A company, you get, you know, X amount or something like that. So you can get pretty creative there. This is a structure, 100% financing plus earnout. So this is probably when you know your business isn't attracting too many offers, you really just want to sell it to something. Maybe you find someone that has a lot of passion and can breathe a lot of new energy into the business and they'll essentially just grow it more than you. This definitely isn't on my list of deals that I would personally take, but in some scenarios where if I'm not, if I don't have any other offers from buyers and I find a buyer that I really trust, the relationship is good and they have a clear plan on how they're going to help grow this thing. For larger businesses, definitely don't recommend this unless you're doing it with a strategic buyer. But you can also include an earn out too. So you're essentially having them finance the business 100% over a period of time. And so they, this is going to attract a ton of different buyers. So what you want to do is you want to work with the buyer that has essentially the best plan to grow the company and then you attach an earn out onto that where if they 10x it, you get a part of that too. And so this structure actually it can work in a lot of scenarios, especially if you meet someone or a company or a private equity group where they have a vision of integrating it into their existing company, their existing portfolio. Maybe they just have a knack for this industry and they can really, you know, they'll buy the company. Maybe it's valued at a million in revenue. You agree to just a clean million dollar price tag, whatever that may be, and then they finance that over 12 to 24 months based on the revenue coming in from the business. And then if they hit these growth goals, you get a part of that as well, which can be not a bad thing. The last one is equity swaps. So you know, again, not all buyers are willing to pay all cash. So if you're selling to a strategic buyer and you just want to, again, you built a great piece of software, you think that this could integrate perfectly. You no longer typically want to work at, on, on this piece of software just sitting idle. Maybe it's a good business but you know, you feel it'd be more valuable in the hands of someone else. Maybe there's a negotiation opportunity for you to discuss equity in their company in exchange for acquiring your company. So maybe you're both in the same industry. Like, maybe you should just combine and like this is kind of like mergers. So I hope this is helpful. This is definitely an ebook. That's if you want to read all this in more detail but just wanted to give the high levels and I hope this was helpful. Cheers.