Today’s Deal Note® is titled “cellar paper” as a play on words because in most cases seller paper is close to the bottom, when it comes to consideration.
While there are always exceptions, and at times seller paper can be used intelligently in middle market aerospace and defense mergers and acquisitions, our experience over the past 24 years, proves to us that sellers should not take seller paper.
Although aerospace and defense includes a lot of rocket science, there’s not a lot of rocket science to this viewpoint. Seller paper puts substantial risk on the seller, at a time, post transaction, when the buyer will be in control of the business. The seller will no longer be able to make key decisions to ensure the financial health and soundness of the business, and yet they will be holding the bag, in the event the business flounders.
While unique structures can aid in getting a deal done (e.g. equity roll overs, earn outs, and other forms of complex consideration), our experience has been that seller paper is at the bottom of the list.
Have a great day, everyone
Troy Medeiros
Vice President
