Deal Structure Over Price

Nick Huber learned through experience that deal structure and terms matter as much as—or more than—the headline valuation when acquiring a company. When he decided to buy Somewhere (formerly Support Shepherd) for $52 million, he had to get creative with financing and quickly realized that the economics of his ownership stake depended entirely on how the deal was structured.

Key Points on Deal Structure:

• Initial Challenge - Raising Capital:

  • Planned to raise $20 million to buy approximately 40% of the company from Marshall
  • Quickly realized the economics didn't work in his favor with a standard structure

• The Carry Problem:

  • With $20 million raised from investors, he would only be entitled to a 20% carry on profits
  • This meant his ownership would only go from about 12% to 20% after raising $20 million and taking on all the risk
  • He'd have to get all investors made whole plus a hurdle before seeing any upside
  • His conclusion: "I can't do this deal like it would be foolish for me to do this"

• Creative Restructuring:

  • Went back to Marshall to negotiate buying more of the company
  • Carved out an 18% seller note directly from Marshall for approximately $9 million
  • A seller note meant Marshall would essentially lend him the money to pay Marshall, with payments over time
  • Combined the $20 million investor raise with the $9 million seller note for total financing of $29 million

• The Lesson:

  • "Terms is where like anybody who's done deals knows like structure and terms matter a ton in how a deal gets done"
  • Different structures include: all stock deal, all cash deal up front, earn out, contingency based, seller finance
  • "There's a big array of different ways a deal can go down"
  • Understanding these options allowed him to make the deal work when the initial structure would have been "foolish"