Library topic
Valuation and structure
How businesses are valued, how deals are structured, and how earn-outs, working capital and agreements shape what a seller receives.
8 pieces
- The shareholders' agreement in a minority stake dealGuide · 8 minWhen an investor buys a minority stake, the shareholders' agreement decides how much say it gets and how it will eventually exit. The points negotiated hardest are board seats, the list of reserved matters, transfer restrictions, tag and drag rights, and what happens if no exit arrives on time.
- Letter of intent or term sheet: what to agree firstGuide · 5 minA letter of intent or term sheet is mostly non binding, but it sets the frame for everything after it. Settle price mechanics, structure, exclusivity and closing conditions early; warranties and indemnities can wait for the definitive agreement.
- Working capital adjustments explainedGuide · 7 minMany deals agree a price on the basis that the business comes with a normal level of working capital. If there is more or less at closing, the price moves. Sellers most often lose money through a reference level set at a peak month and vague definitions.
- Warranties and indemnities in Indian dealsGuide · 7 minWarranties and indemnities decide who pays if something about the business turns out to be wrong after closing. Warranties cover the business in general, indemnities cover specific known issues, and the agreement sets limits on how long, how small and how large a claim can be.
- Asset sale or share sale: which should you choose?Article · 8 minIn an Indian deal, the choice between buying shares and buying assets decides who carries old liabilities, what happens to licences and staff, and how tax falls on each side. It is worth settling before the term sheet.
- How a business is valued: DCF, comparables and precedent dealsArticle · 7 minPromoters often hear three valuations for the same business and wonder which one is right. Each method answers a different question, and a Rajkot auto parts maker selling a minority stake shows where each one helps and where it misleads.
- Earn-outs in Indian deals: when they help and how they go wrongArticle · 7 minAn earn-out pays part of the price later, if the business meets agreed targets. It works when the measure is clear and the seller keeps real influence. The definitions, the controls, the payment security and the Indian law points decide whether it holds.
Terms to know
The words you will hear on this part of a deal.
- Enterprise value
- The value of the whole business before taking away debt and adding surplus cash. Equity value is what shareholders receive after those adjustments.
- Debt free, cash free
- A common pricing basis: the buyer pays for the business as if it had no debt and no surplus cash, and the price is adjusted for both at closing.
- Working capital adjustment
- A change to the price at closing if the business's working capital is above or below an agreed normal level.
- Read more
- Locked box
- A pricing method where the price is fixed on a past balance sheet date and the seller promises no value leaks out of the business after it.
- Earn-out
- Part of the price paid later, depending on how the business performs after the deal, usually against revenue or profit targets.
- Read more
- Slump sale
- Sale of a whole business undertaking for a lump sum without values assigned to individual assets. The Income Tax Act gives it a specific tax treatment.
Next step
Working through this on a live deal? Talk it over with an adviser.
A thirty minute confidential call with an adviser. You leave with the steps, the documents you will need and where the risks usually sit.