New Venture Lab: Equipping Christian Entrepreneurs

Question

Can you describe "Lease Management" and provide more information on structuring that sort of deal?

Answer

Lease management is simply a deal structure and as such, everything about it is negotiable.  Lease management tends to work well when:

1) The Seller knows the Buyer well. 

2) The Seller trusts the Buyer's ability to run the business post-transaction and the Buyer can credibly articulate a plan to make dramatic improvements in the business in order to deliver an acceptable level of CF to the Seller. 

3) The Seller does not need all or most of the cash at Closing. 

4) The Seller does not have a ready market for selling the business to other Buyers and is therefore more willing to accept a share of the CF as the deal consideration. 

5) Much of the value of the business is wrapped up in the Seller's relationship with the customers or in the Seller's knowledge of the business and is therefore hard to extract that value without a long-term buyout that continues to involve the Seller. 

6) The value of the business is at or below the typical market multiples of earnings (this ranges between 3 - 7X, but towards the lower end of the range).