George P. Shenas

Can Seller Financing Be the Answer?

As companies look for ways to improve their marketability in the M&A marketplace, it may be worth taking a look at the possibility of taking back a promissory note from the acquired company as part of the purchase price consideration ("Seller paper").

Taking back Seller paper is sometimes useful to bridge the gap between the seller's desired purchase price and the amount of cash available to the buyer through its own reserves or through conventional third-party financing sources. This may be a particularly appealing option if seller's management expects to remain in place after the closing. By tying the ultimate payment to the seller with its performance as post-closing managers, the buyer is able to assure that the best efforts of the seller will continue, at least until the note is paid off.

While such Seller paper often carries with it significant limitations and risks such as non-transferability and subordination to other credit facilities of the company, it is sometimes worth considering if the seller is intent on making a sale in a down market.

If you are interested in learning more about this financing device, please give George Shenas a call at (619) 236-1004 or drop him an email at gshenas@gpsinc.com

George P. Shenas