The buyer is proposing a stock purchase structure but wants to deduct our long-term lease liabilities directly from our enterprise value, effectively reducing our purchase price dollar-for-dollar. How do we argue against this double-counting of lease expenses when our business relies on these physical locations to generate our EBITDA?

Question

Tyler Smith · Accepted Answer

This is a classic buyer tactic designed to chip away at your enterprise value. They are attempting to treat an operating lease as a debt-like liability while simultaneously benefiting from the revenue and EBITDA generated by those very same leased facilities.

To defeat this proposal, you must explain the accounting mismatch. Your EBITDA valuation multiple already accounts for the rent expense associated with those leases. If the buyer subtracts the future lease payments from your purchase price, they are double-counting the cost of those facilities. They are getting the cash flow generated by the locations while forcing you to pay for the future right to use them.

Provide a detailed operational analysis of your locations. Show how your real estate footprint is a core value driver that directly generates your historical margins. Use your V/TO® and business plan to demonstrate how these locations are optimized and managed by your leadership team.

Offer a structural compromise in the purchase agreement. Agree that any lease liabilities exceeding normal, market-rate operating expenses can be adjusted, but insist that standard operating leases remain classified as operating liabilities, not debt. Stand firm on the principle that your EBITDA already bears the cost of the lease, and any further deduction is an unjustified double-dip.