We have two competing offers: a 7.5x EBITDA bid consisting of 60 percent cash, 20 percent seller note, and 20 percent rollover equity, and a 6x bid that is 100 percent cash at close. How do we determine which deal structure yields the higher net outcome?

Question

Tyler Smith · Accepted Answer

Headline valuation is vanity; cash certainty is reality. To compare a structured 7.5x offer against an all-cash 6x offer, you must calculate the risk-adjusted net present value of every consideration component rather than accepting the top-line number at face value.

In the 7.5x offer, only 4.5 turns of EBITDA are delivered as guaranteed cash at close. The remaining 3.0 turns carry significant structural risk. The 20 percent seller note is almost certainly subordinated to senior bank financing. If the buyer defaults or runs into liquidity covenants, payments on your seller note will be frozen under a standard subordination agreement.

The 20 percent rollover equity represents minority ownership with zero governance control. If the private equity sponsor charges hefty annual management fees, levers up the platform with debt, or issues preferred equity tranches ahead of your common units, your rollover stake can be diluted or wiped out completely in a downturn.

In contrast, the 6.0x all-cash offer provides complete liquidity, terminates operational and market risk, and allows for clean tax planning immediately upon closing. There is no dependency on the buyer's execution ability or capital structure.

Unless you have conducted deep operational due diligence on the sponsor, verified that your rollover equity shares the exact same class and rights as their institutional capital, and secured favorable terms on the seller note, the 6x all-cash offer often produces a superior risk-adjusted net financial return.