When a buy/sale deal closes, many times the interests of the buyer and seller differ. Most sellers want to take all the consideration due to them immediately, and disappear. It is rare for a buyer to not want the seller to provide a seamless transition of the operations of the business just sold by remaining involved with the company for sometime after the sale. Often times a significant part of the total cash received in a transaction will be tied to the seller’s future involvement in the business.

After-sale arrangements can take a number of different forms; the most common are:

  • employment contracts,
  • consulting agreements,
  • non-compete agreements,
  • financing a part of the deal, and
  • earn-out arrangements.

In addition to defining an after-sale role, these agreements can also serve to compensate the seller in connection with the sale, with potential tax advantages to the buyer and seller. M&A advisors must understand the potential advantages of after-sale arrangements for the client and provide for the early discussions and planning in defining the negotiating terms of the transaction for their benefit.

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