BVX Knowledge Base
BVX Knowledge Base
M&A University

Deal Structure

Most users are not accustomed to entering deal structure data as part of the valuation because traditional valuation methods do not adequately address deal structure issues. 


For example consider Asset purchase vs. Stock purchase of a business. A substantial majority of small businesses get acquired through Asset purchase. In an Asset purchase the buyer writes-up the fixed assets to their fair market value (The actual amount is often negotiated between the buyer and the seller due to "depreciation recapture" tax implication to the seller). This step-up of the fixed assets increases buyer's depreciation and hence the cash flow. This would increase the price he can afford to pay. Similarly, buyer gets the benefit of goodwill write-off in an Asset purchase. This further increases the cash flow and the price he can afford to pay. Traditional valuation methods do not distinguish between an Asset purchase and a Stock purchase.


BVX allows a choice of Asset vs. Stock purchase deal structure option. Additional deal structure options are Gap financing availability (often called Seller financing or Cash Flow borrowing or sub-debt financing), and purchase price allocation to non-compete, personal goodwill or consulting. Deal structure impacts business value.


The deal structure options can answer questions like:

a) What is the difference between an Asset purchase and a Stock purchase valuation?

b) What is the impact of various levels of fixed assets write-up?

c) What is the purchase price if the seller will not finance and if no other cash flow lender can be found?

d) What is the impact of price allocation to personal goodwill, to non-compete, to consulting?