In previous DealNotes®, we have covered different components of the “Proceeds Waterfall”, also commonly referred to as a “Closing Waterfall”, but this DealNote® is focused on a summary of this concept. Each individual component has or will have a respective DealNote® (“DN”) on it.
The purchase price is not equal to the net proceeds a seller receives at closing because of a handful of adjustments that occur. Below is a sample of these adjustments, which are most common. All of the following are subtracted from the purchase price to calculate net proceeds at close.
- Funded debt
- Any outstanding loans or debt obligations are typically paid off at closing (DN49).
- Liabilities not being assumed by the buyer
- If the buyer is not assuming certain liabilities, they are typically paid off by the seller.
- Escrows
- The two most common are escrows for indemnity (DN105) and working capital (can be replaced by RWI – DN53). If no claims are made post-closing, the seller will receive this amount after the agreed upon hold time.
- Transaction expenses
- This includes fees like: M&A advisor, legal counsel, accountant, and QofE provider.
- Stay Bonuses
- In some cases, bonuses are paid to key employees who remain with the business post-closing.
As just outlined, the purchase price does not equal your proceeds at closing.
It is important to keep these adjustments in mind long before you get to the closing, so there are no surprises.
Have a great day,
Ryan Kirby
Junior Partner
