Put every offer on the same basis
Clarify whether the quoted amount refers to enterprise value, equity value or another measure. Identify the entities, assets and liabilities included and whether the transaction concerns shares or assets. Do not assume two letters of intent use the same definitions.
Create a comparison schedule rather than relying on a verbal summary. Where wording is ambiguous, ask the buyer and relevant advisers for clarification. Financial analysis can show the consequence of a term, but legal and tax treatment needs the appropriate advice.
Build an illustrative completion bridge
Suppose a hypothetical offer states £1.5 million enterprise value, with £200,000 debt and £80,000 relevant surplus cash. Ignoring other items, the arithmetic equity bridge is £1.38 million. The agreed definitions, date and completion mechanism determine whether those adjustments are appropriate.
Do not label that figure net proceeds. Fees, tax, adjustments, retained amounts and payment timing may still apply. Keep the operating value bridge, contractual funds flow and seller’s personal after-tax analysis as separate schedules that can be reconciled.
Identify what is actually payable at completion
Split the consideration into completion cash, fixed deferred amounts, contingent payments and any retained or rolled-over interest. Ask what conditions must be satisfied before each amount is paid. A future promise should not appear in the same column as immediately available cash.
Include the seller’s continuing obligations, such as employment or transition support, where they are relevant to understanding the package. Their commercial and legal treatment requires clarification. The practical question is what the seller receives, when and subject to what risks.
Stress-test earn-outs using controllable assumptions
Understand the performance definition, measurement period and how the acquired business will be operated. Revenue, EBITDA and profit can produce different incentives. Costs allocated after completion may materially affect the outcome. Obtain legal input on drafting and protection.
Model a base case and weaker performance case using explicit assumptions. If an earn-out needs growth, check the resources and investment required. A probability estimate can be uncertain; a range of transparent outcomes is more useful than presenting the maximum as guaranteed value.
Consider working capital and transaction mechanics
Ask whether the offer assumes a normal level of working capital and how it will be assessed. Seasonality, overdue debtors and supplier timing can influence a completion adjustment. Do not assume all bank cash is freely distributable before the sale.
Understand whether pricing is based on completion accounts or another agreed mechanism. The financial analysis should follow the actual terms and be coordinated with legal and tax advisers. Small wording differences can change what is economically included in the offer.
Use the same downside for each offer
Compare offers under a consistent adverse trading assumption where contingent payments are involved. Otherwise one proposal may be assessed at its maximum and another more cautiously. Keep legal conditions and counterparty exposure visible beside the arithmetic. The analysis should help you understand the trade-off rather than manufacture a single score that conceals your priorities.
| Area | Evidence to examine | Question to resolve |
|---|---|---|
| Completion | Funds flow and payment conditions | What is payable immediately under the proposed terms? |
| Deferral | Dates, interest and counterparty obligations | What remains unpaid and what protects the seller? |
| Earn-out | Metric, period and operating assumptions | How does the same weaker trading case change receipts? |
Make a decision matrix with uncertainty visible
Compare completion cash, later payments, conditions, funding evidence, required seller involvement and the information still missing. Record what has been agreed and what remains negotiable. A higher headline can still be attractive, but the trade-offs should be explicit.
Consult EFC can discuss a scoped buyer-offer review and proceeds model. Send a non-confidential outline first and arrange an appropriate channel for detailed terms. The work supports your decision; it does not guarantee payment, complete the legal negotiation or replace personal tax advice.
Your preparation checklist
- Confirm the value definition and transaction perimeter.
- Separate completion cash from deferred and contingent sums.
- Model the agreed debt, cash and working capital bridge.
- Review legal, tax and ongoing seller obligations separately.
Frequently asked questions
Is the highest offer always the best offer?
No. Compare timing, conditions, funding and your continuing obligations alongside the headline amount.
Is an earn-out the same as fixed deferred payment?
No. An earn-out depends on defined future outcomes; fixed deferred consideration has different conditions and counterparty exposure. Review the actual agreement.
Can I spend all the company cash before completion?
Do not assume so. The business’s needs and proposed transaction terms can constrain distributions; obtain appropriate advice before acting.
Sources and scope
This is general preparation guidance. Worked examples are original hypothetical illustrations, not client outcomes, market multiples or individual advice. Agree the purpose, evidence and scope before commissioning professional work.
Professional background: ICAEW business and share valuation resources and IVSC standards overview. These links provide context and do not imply endorsement, assurance or compliance for an individual engagement.
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