A guide to settling post-closing conditions and earning a return on your investment
Last updated: July 6th, 2023
When you buy a business, you seldom complete the acquisition on closing day.
Most deals, even small ones, involve conditional payments and a period where the seller is responsible for indemnifying you for representations and warranties.
The seller might also have agreed to provide transition services or even stay on with the business for an agreed time.
For example, the scenarios below could involve the seller post-closing:
- Seller financing repayments
- Conditional payments such as holdbacks and earnouts
- Indemnification under representations and warranties
- Transition services
You also want to ensure you can earn the biggest return on your investment, which can involve seller strategies or those you've devised yourself.
Either way, here's a quick guide to what happens after closing day.
1. Deliver on your promises to the seller
Seller financing is common in acquisitions and involves them financing a portion of the purchase price, sometimes at a premium.
Once your acquisition closes, stick to the repayment schedule you agreed to in the APA or seller financing agreement. Failure to make repayments on time may upset the seller and impact your reputation in the market – it could even result in legal action.
Likewise, if you agreed to certain things post-closing, such as giving the seller a role within your newly-acquired company, follow through on your promise.
Help the seller transition into their new role and support them to achieve your business's goals. The happier they are, the better they perform – and that helps your bottom line.
Seller financing isn't currently supported in our escrow builder (we're working on it). Refer to the APA or seller financing agreement for repayment instructions.
2. Monitor post-closing conditions
Your acquisition might've included post-closing conditional payments, such as earnouts and holdbacks. These are effective tools for managing acquisition risk and can also help bridge the gap between your and the seller's price expectations.
Keep an eye on the expected outcomes of these conditions. Sellers will request conditional payment when they believe they've met the condition's requirements. It helps to be on top of this so that when the time comes, you can pay them promptly.
Likewise, pay special attention to the business and how it performs once it's under your control. If it doesn't live up to the seller's promise and you suffer a loss, you could, in theory, ask them to indemnify you under the representations and warranties condition in your APA.
If you believe you're entitled to indemnification under representations and warranties, consult with an attorney for expert guidance on next steps.
3. Ask the seller for help
Just because you've bought the business doesn't mean the seller has washed their hands of it. Hopefully, you built a good relationship with them and can ask for their help if you're unsure of something, such as where to find a file or how an aspect of the business works.
Usually, these transition services are formalized in the APA, but even if you neglected to include it, you'd be surprised how helpful sellers can be. They have an interest in your success, both for their legacy and reputation in the startup community.
You're bound to have questions as you delve deeper into running the business and asking the seller is much faster than trying to figure things out alone.
Outside of agreed transition services, only ask for seller help when you're stuck. You don't want to upset the relationship by drowning them in messages or emails.
4. Start your plays
Now you're the new owner, it's time to put your growth or profit strategies into action.
The seller might have clued you into some untapped markets or sales channels. Exploit them. Likewise, if you possess a skill the business lacked, apply it now.
Learn growth strategies from Fork Equity partner, Ryan Kulp in our FREE course.
You're usually in competition with others offering similar products and services. Time is a powerful weapon in defeating them or carving out a share of the market. Use it to your advantage by following your plays as soon as possible after acquiring the business.
5. Tell us your story
We'd love to know more about your entrepreneurship journey.
Check out our How I Got Acquire'd blog series or our SaaS Acquisition Stories podcast to learn how we promote you and your story to 100,000s of fellow entrepreneurs.
If you're interested in participating, drop our head of marketing, Roger Tung, a line on roger@acquire.com.
Still need help?
Search the help center again or contact us at support@acquire.com.