What are the three key variables in retention clauses and clawback provisions used in acquisition deals?
Answered at 15:16 in Dealing with Acquisition Risk: How Buyers and Sellers Balance Price, Terms, and Uncertainty (Ep. 36) · The Fine Print
What are the three key variables in retention clauses and clawback provisions used in acquisition deals?
The three key variables in retention clauses are: what you measure (revenue, AUM, or clients), when you measure (typically 12 months after closing, occasionally 18 months), and what your target is (usually 90% if paying normal value, or 95-100% if paying a premium). The measurement metric directly ties to price, with revenue being the most common historically, though client count measurement is increasing in popularity because it eliminates market risk.
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In short
The three key variables in retention clauses are: what you measure (revenue, AUM, or clients), when you measure (typically 12 months after closing, occasionally 18 months), and what your target is (usually 90% if paying normal value, or 95-100% if paying a…
Guest · Dealing with Acquisition Risk: How Buyers and Sellers Balance Price, Terms, and Uncertainty (Ep. 36) · The Fine Print · answer at 15:16
Quote to remember
“If I set the price, you can set the terms. You can generally find a way to make my number work.”
The full answer · about 4 min
The three key variables in retention clauses are: what you measure (revenue, AUM, or clients), when you measure (typically 12 months after closing, occasionally 18 months), and what your target is (usually 90% if paying normal value, or 95-100% if paying a premium). The measurement metric directly ties to price, with revenue being the most common historically, though client count measurement is increasing in popularity because it eliminates market risk.
Key facts
- 2 to 2.5 times revenue valuation multiples currently paid for advisory practices
- 6 to 7 times earnings multiples currently in the market
- 10-20% growth rate required over 4-5 years in PE deal earn-outs to achieve full value
- 40-50% cash down payment structure in PE-backed aggregator deals, sometimes reaching 60%
- 90% revenue or client retention threshold as standard target in acquisition clawback clauses