From the series 11 Critical Steps in the Sell-Side M&A Process to Build Founder Confidence
Question: We’ve received three offers. One has the highest headline price, but it includes an earnout and rollover equity. Another is slightly lower but all cash. The third comes from a strategic buyer that seems like a strong cultural fit, though the valuation is in the middle. How do we know which one to choose? Hear from the Paddock Capital Markets Team below!
Jeff Solomon, Co-Founder & Managing Partner: All cash deals in the middle-market are really only designed for founders looking to cash out and do something away from the business (e.g., exploring other business ventures, retirement plans, etc.). To maximize value, founders interested in rolling over equity and staying with the business will tend to command the highest valuations in today’s market. However, staying on to help grow the business under new ownership elevates the importance of strategic and cultural fit. Alignment with the buyer vision is paramount in selecting the right long-term partner, no matter how high the ultimate valuation.
Bill Wendel, Managing Director: Evaluating an offer is the most complex, and perhaps the most important, investment decision you may make. But in fact it is similar to any investment decision. What are your goals, time horizon, and risk tolerance? The answer lies in maximizing the alignment of those factors.
Sri Malladi, Managing Director: It depends on what is important to our client (and we have worked with clients who fall into each of these three buckets). The first is probably the right choice for the seller if the owner(s) are looking to stay on for 2-3 years and grow the business but eventually want to step out. A seller who’s looking to move on and either retire or spend their time on other pursuits relatively quickly will prefer the second. And we have had clients who choose the third option because they feel that they have taken the business as far as it can as an independent operation, and are really looking forward to a longer career in a larger organization (and with the right support systems for them to grow the business).
Jack Smith, Investment Director: Everyone loves the headline number until they realize half of it’s in “future maybe money.” I’ll recommend taking a slightly smaller all-cash deal over an earnout that depends on next year’s weather forecast. The best deal is the one that closes and lets you sleep at night.
Riley Monahan, Investment Banking Associate: When evaluating offers, it is important to weigh the trade-off between immediate liquidity and future potential. The all-cash offer provides certainty, while the earnout and rollover equity could offer higher long-term value. Ultimately, the right deal comes down to what is the best financial and cultural fit for the client.
Bill Salus, Co-Founder & Managing Partner: The best offer isn’t always the highest sell price, it’s the one that best aligns with your goals, risk tolerance, and legacy. Evaluating offers through a disciplined lens helps founders move forward with clarity and confidence.