An uncommon and innovative approach in mergers and acquisitions.
Here is what you need to know.
Components:
Performance Indicators: The metrics used to measure the business's success, such as customer satisfaction, employee retention, market share, and others.
Payment Plan: The schedule and calculation of payments, which can be based on performance targets.
Success Triggers: The conditions that signal the end of the Growth-Share period, such as reaching a specific market position, launching a new product, or fulfilling customer milestones.
Advantages:
Aligned Interests: By linking the purchase price to the success of the business, a Growth-Share structure promotes a shared goal for growth and aligns the interests of both the buyer and seller.
Deferred Payment: The buyer can defer a portion of the purchase price until the success of the business is demonstrated, reducing the upfront risk.
Minimized Risk: The buyer pays only for the success of the business, minimizing their risk.
Disadvantages:
Complexity: Negotiating a Growth-Share structure can be complex, particularly if there are disagreements about the performance indicators or payment plan.
Uncertainty: The seller may only know how much they will receive at the end of the Growth-Share period, creating uncertainty.
Conflict: The Growth-Share structure can lead to conflicts between the buyer and seller, especially if the performance indicators or payment plan are not well-defined.
Steps:
Identify Performance Indicators: The first step is to determine the performance indicators that will influence the payment, which should be relevant to the business and indicative of its future success.
Negotiate Payment Plan: The next step is to negotiate the payment plan, including the timing and calculation of the payments, ensuring both buyer and seller interests are taken into account.
Define Success Triggers: Clearly define the conditions that signal the end of the Growth-Share period, such as reaching a specific market position, launching a new product, or fulfilling customer milestones.
The Growth-Share structure in M&A is an uncommon and innovative approach that promotes a shared goal for growth and minimizes the buyer's risk.
It is important to carefully consider the advantages and disadvantages and structure the arrangement equitably for both parties involved.