selling a startup: What about the debt ?

Dear All,

I have a very practical question for the community relate to the selling of my starting, and what happen to the debt.

I have a start-up about to be acquired. My company has some debt, and i was wondering what actually happen in this case.
Debt is a mix of unpaid salaries, contractors ...

The acquirer will purchase 100% of the shares at a given price and the acquirer agreed to inject enough money post-acquisition to sustain and develop the business.

To deal with the debt, In my opinion, there are 2 options:
1- pay the debt off the money received from the acquisition: problem is that this money belongs to share holder, so unless there is a 100% consent from a shareholder meeting, we cannot use their money.
2- the acquirer "buys" the debt as a package with the company, and settles it post-acquisition.

Could someone help me figure out what would be my decision in such case ?
Are there options I did not think of (most probably) ?

Thank you all so much for any time spent reading and replying.

Regards

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Comments (6)

Sep 2, 2012 - 7:46am

If it's 100% then #2 occurs. If not then #1 occurs... i.e. a 49-51 split. Additionally, as on one deal I worked on, there was a company which IPOed and 80% of its shares were bought, control was taken via a larger takeover, and the original owners swapped for their debt for equity in their company. This is an extreme example, but if the takeover is through debt (a loan to originally buy the company) than this is useful for you, the original owner, to still have some amount of control (hence the 20%).

Sep 2, 2012 - 10:14am

Thank you all for your very prompt answer.

@Asatar,
what you say is basically that technically (or legally) it's #2, but it comes back to solution #1, as the selling price would be affected. I think you were suggesting that the amount of the debt would be taken off the total selling price.

@G.M. Trevelyan
It's a 100% share selling. We had some third party companies doing some work for us, and we could not pay them yet, thus the debt.

Again thank you both for your precious feedbacks ;)

Sep 2, 2012 - 11:51am
fadrior:
Thank you all for your very prompt answer.

@Asatar,
what you say is basically that technically (or legally) it's #2, but it comes back to solution #1, as the selling price would be affected. I think you were suggesting that the amount of the debt would be taken off the total selling price.

They are taking into account how much debt you have when they are valuing your company. Your debt becomes theirs.

This to all my hatin' folks seeing me getting guac right now..
Sep 2, 2012 - 12:51pm
fadrior:
Dear All,

I have a very practical question for the community relate to the selling of my starting, and what happen to the debt.

I have a start-up about to be acquired. My company has some debt, and i was wondering what actually happen in this case.
Debt is a mix of unpaid salaries, contractors ...

The acquirer will purchase 100% of the shares at a given price and the acquirer agreed to inject enough money post-acquisition to sustain and develop the business.

To deal with the debt, In my opinion, there are 2 options:
1- pay the debt off the money received from the acquisition: problem is that this money belongs to share holder, so unless there is a 100% consent from a shareholder meeting, we cannot use their money.
2- the acquirer "buys" the debt as a package with the company, and settles it post-acquisition.

Could someone help me figure out what would be my decision in such case ?
Are there options I did not think of (most probably) ?

Thank you all so much for any time spent reading and replying.

Regards

The classic way to handle this is to do an asset sale. Fuck those creditors right up the old caboose.

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