The deal structure toolkit

Connectivity map for the five structural levers

• 4.2 Concept: The five structural levers The core concept in structure toolkit
• Seller Note: When To Use It: Seller note: when to use it You need more leverage than the bank will provide, the seller wants to demonstrate confidence in post-close performance, the seller wants installment sale tax treatment. Pitch to Wealth Maximizer: 'The note gets you to your target number.' (Typical term: $2M at 6% interest, 5-year term, interest-only)
• Earnout: When To Use It: Earnout: when to use it Customer concentration creates retention risk, revenue growth is trending up but not proven, the seller is staying involved and has direct influence over performance, or you need to bridge a valuation gap. Use a single metric - revenue, EBI (Pitch to Wealth Maximizer: 'The earnout lets you reach the $)
• Equity Rollover: When To Use It: Equity rollover: when to use it The seller wants to participate in upside from the business they built, you want alignment post-close, or the seller's retained knowledge and relationships make them a more valuable partner than a pure vendor. Typical terms: 10 to 30% of pr
• Escrow: When To Use It: Escrow: when to use it You need protection for indemnification claims, working capital adjustments, or earnout disputes. Typical terms: 5 to 15% of purchase price, 6 to 18 months duration, released to seller on schedule if no claims arise. Escrow is not punishmen

• The five structural levers feeds Seller note: when to use it: Seller note: when to use it supports the five structural levers.
• The five structural levers feeds Earnout: when to use it: Earnout: when to use it supports the five structural levers.
• The five structural levers feeds Equity rollover: when to use it: Equity rollover: when to use it supports the five structural levers.
• The five structural levers feeds Escrow: when to use it: Escrow: when to use it supports the five structural levers.

The structure you propose should come directly from the findings in your Module 3 diligence. Each risk maps to a specific lever.

• 4.2 Concept: Matching structure to risk The structure you propose should come directly from the findings in your Module 3 diligence. Each risk maps to a specific lever.
• Customer Concentration Risk: Customer concentration risk Earnout tied to customer retention over 1 to 2 years, plus extended seller transition to manage the handoff personally.
• Ebitda Below Expected: EBITDA below expected Reduce the purchase price. If the seller resists, bridge with seller note or EBITDA earnout.
• Working Capital Declining Pre-Cl: Working capital declining pre-close Tighter peg, escrow for working capital true-up, maintenance covenant in the purchase agreement.
• High Owner Dependency: High owner dependency Extended transition with milestones, consulting agreement, equity rollover to keep the seller aligned.

• Matching structure to risk feeds Customer concentration risk: Customer concentration risk supports matching structure to risk.
• Matching structure to risk feeds EBITDA below expected: EBITDA below expected supports matching structure to risk.
• Matching structure to risk feeds Working capital declining pre-close: Working capital declining pre-close supports matching structure to risk.
• Matching structure to risk feeds High owner dependency: High owner dependency supports matching structure to risk.