We have an all-cash offer from a strategic buyer at a six-times multiple and an eight-times offer from a private equity group structured with rollover equity and seller paper. How do we evaluate which deal structure delivers superior net proceeds?

Question

Tyler Smith · Accepted Answer

Evaluating competing term sheets requires looking beyond headline enterprise value. A six-times all-cash strategic offer often yields far more certain wealth than an eight-times private equity bid loaded with conditional notes and rollover equity.

Begin by stripping away the non-cash components of the private equity offer. A typical sponsor deal might include sixty percent cash at close, twenty percent subordinated seller debt, and twenty percent rollover equity into their new holding company. You must discount the seller note for default risk and subordination to senior bank lenders. Rollover equity carries significant structural risk; if the sponsor takes on excessive debt or charges high management fees, your equity can be completely wiped out in a downturn.

Conversely, analyze the strategic buyer's cash-at-close against potential integration risk. Strategic acquirers often pay one hundred percent cash because they intend to eliminate redundant administrative roles and absorb your customer base. While cash provides immediate certainty and zero post-close operational risk, you give up any second-bite upside.

Use your leadership team's V/TO to decide where you want your people and brand to land. If you want a complete, clean exit with zero trailing liabilities, the all-cash strategic offer is superior despite the lower multiple. If your leadership team is young, hungry, and wants to run a larger platform with a lucrative second exit, the private equity structure can generate superior long-term wealth, provided your rollover shares share the exact same class and rights as the sponsor's institutional capital.