Based in panama, rafael has 25 years of investment experience including private company acquisition, public markets, and real estate.

He looks to teach from experience how to be a better investor and business owner.

The 4-1-1 offer

An independent sponsor presented us with an opportunity last week where the price and structure had already been negotiated.

 

The agreement called for cash on closing, rollover equity, and an earnout.  The sponsor called it a 4-1-1.

 

Cash on closing of 4x EBITDA

 

Rollover equity of 1x EBITDA

 

Base case earnout of 1x EBITDA

 

The seller’s top line number was 6x, but the initial cash outlay for us would be 4x.  This gives them a road to receiving the value they feel the business is worth and protects us from overpaying while also freeing up cash to do other things.

 

While I knew of each of these 3 mechanisms, I had never seen them put together like this and with specific multiples attached.  We have always paid 100% cash on closing (with a portion going to escrow).

Operator vs Allocator

7 Lessons from Building a Holding Company