Some deals are struck based on anticipated future performance of the combined entity. Sometimes, the seller sells based on that future performance that may or may not happen.
- All M&A deals are based on expected future performance…of that combined entity.…Sometimes the seller is selling…based on that future performance…that may or may not happen.…Those are cases where the buyer can use a holdback…where cash is held back…and only paid if certain conditions are met.…Holdbacks are usually used to mitigate risk.…They're released once a specific risk is addressed.…For example, I may hold money back in a deal…until the acquired company passes its EPA inspections…or I may hold money back until I can confirm…the number of customers that I actually bought.…
If holdback conditions aren't met,…then the payment isn't made.…If they are met, then the payment is made.…Holdbacks can also be a cliff approach…or a pro rata approach.…I know one company that was purchased…that had a combination of holdbacks.…Part of it was cliff and part was pro rata.…The cliff piece was if the company met…its clinical trial endpoint for its pharmaceutical product,…they would get the full amount of that holdback.…Also, they had revenue targets…
Author
Mike Figliuolo
Released
9/21/2018- Describe the forces in the Porter's Five Forces framework
- Identify the elements that go into making an acquisition case
- Contrast the benefits and costs of approaching a target directly or indirectly
- Explain why the Herfindahl-Hirschman index is important
- Explain how to conduct good valuation analysis
- Identify four methods of paying for an acquisition
- Discuss the reasons for including additional deal terms beyond price
- Describe the due diligence process and explain why it's important
- State the reasons why communication during integration is critical
Skill Level Beginner
Duration
Views
-
Introduction
-
Unlocking growth through M&A1m 13s
-
-
1. Identify M&A Targets
-
Identify targets2m 59s
-
Make an investment case2m 25s
-
2. Approach the Target
-
Approach the target directly1m 47s
-
-
3. Assess the Deal
-
4. Negotiate the Deal
-
Model the valuation2m 2s
-
Define the deal structure1m 51s
-
Negotiate the price1m 52s
-
Use holdbacks and earnouts2m 44s
-
Define other deal terms2m 2s
-
-
5. Conduct Due Diligence
-
Work with outside advisors1m 49s
-
6. Consummate the Transaction
-
Finance the deal1m 44s
-
Sign purchase agreements2m 14s
-
Communicate the deal1m 48s
-
-
7. Integrate the Acquisition
-
Plan the first 100 days1m 53s
-
Build the integration team1m 48s
-
-
Conclusion
-
Avoid acquisition pitfalls1m 54s
-
Take notes with your new membership!
Type in the entry box, then click Enter to save your note.
Press on any video thumbnail to jump immediately to the timecode shown.
Notes are saved with you account but can also be exported as plain text, MS Word, PDF, Google Doc, or Evernote.
Share this video
Embed this video
Video: Use holdbacks and earnouts