Skip to main content
Proposals are written to lead with their headline price, but the headline is only where the comparison starts. This example puts two offers for the same company side by side, on the basis we use in every proposal comparison: what you receive at closing, what is held back, what is contingent, and how likely the deal is to close. Offer A is the one in our price to proceeds example. The company has US$2.0M of cash, US$3.0M of debt and US$0.5M of debt-like items, and its working capital, positive because it bills most customers monthly, has averaged US$1.1M over the last twelve months.

​
The two offers

​
From headline to proceeds

US$ millions, illustrative, before taxes. The earn-out’s expected payment comes from Valuing an earn-out. Neither escrow nor earn-out is discounted for time, which would widen the gap further.
B ahead at closing
US$6.0M
B ahead in total
US$0.9M
A ahead on headline
US$2.0M

​
Where the US$2.0M went

Offer A’s US$2.0M lead becomes a US$0.9M deficit: a swing of US$2.9M, made up of the earn-out (US$2.5M less than its maximum) and the working capital target (US$0.4M). The escrow doesn’t change the expected total here, but it changes when you are paid and how much is at risk.
US$5.0M of A’s headline depends on targets after closing. Its expected payment is about half that, and in an all-or-nothing structure it would be lower still.
A’s target of US$1.5M is above the company’s normal level of US$1.1M, so US$0.4M comes off the price at closing, without the business changing at all. A target above your history is a price reduction in a different form. See Setting the working capital target.
A holds back US$3.0M for 18 months against possible claims. B holds back US$0.4M for 12 months, because representations and warranties insurance covers most claims for breaches of the representations. Known issues found in diligence are usually handled separately, through a specific indemnity or escrow.

​
Certainty of closing

Price is only half of the comparison. Offer A depends on the buyer raising debt; if lenders hesitate during the 90 days of exclusivity, you could find yourself renegotiating or starting again. Offer B has committed funds and asks for half the exclusivity period. A lower price with a higher chance of closing can be the better offer, and in this example B is ahead on both.

​
How we would use it

Offer B doesn’t have to be the end of the story. While both buyers are still competing, we would take B’s terms back to A: a working capital target in line with history, a smaller escrow backed by insurance, more of the price fixed and less contingent. If A wants the company, some of those terms may move. These issues are usually easier to negotiate while buyers are competing. Once exclusivity begins, the ability to pursue alternatives is restricted, so we seek clarity on the principal economic terms before that point. See Letters of intent.