How do PE-backed aggregators structure deal payments to justify premium acquisition prices while managing risk?
Answered at 12:16 in Dealing with Acquisition Risk: How Buyers and Sellers Balance Price, Terms, and Uncertainty (Ep. 36) · The Fine Print
How do PE-backed aggregators structure deal payments to justify premium acquisition prices while managing risk?
PE-backed aggregators typically put 40-50% cash down at closing, with the balance split equally between rolled equity in the acquirer's firm and earn-out or performance-based payments. Sellers must achieve 10-20% growth over four to five years to receive full value, which essentially requires retaining all clients and acquiring new ones. If growth targets are not met, sellers may receive only the initial cash payment while the equity portion remains illiquid for many years.
Full answer and detailsRead the whole answer, key facts and every other question from this episode
In short
PE-backed aggregators typically put 40-50% cash down at closing, with the balance split equally between rolled equity in the acquirer's firm and earn-out or performance-based payments.
Guest · Dealing with Acquisition Risk: How Buyers and Sellers Balance Price, Terms, and Uncertainty (Ep. 36) · The Fine Print · answer at 12:16
Key takeaways
- PE-backed aggregators typically put 40-50% cash down at closing, with the balance split equally between rolled equity in the acquirer's firm and earn-out or performance-based payments.
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 3 min
PE-backed aggregators typically put 40-50% cash down at closing, with the balance split equally between rolled equity in the acquirer's firm and earn-out or performance-based payments. Sellers must achieve 10-20% growth over four to five years to receive full value, which essentially requires retaining all clients and acquiring new ones. If growth targets are not met, sellers may receive only the initial cash payment while the equity portion remains illiquid for many years.
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