An owner in his mid-50s received an unsolicited offer from a private-equity-backed strategic buyer. The deal paid $7 million cash at close, up to $3.5 million as an earnout, and $1 million of rollover equity projected to grow to about $3 million. If earnout and rollover only half materialized, paying off $4.2 million of mortgages and funding a $1.5 million donor advised fund could deplete investable assets by his mid-70s. The headline price did not guarantee a durable post-exit plan.
A service-business owner in his mid-50s had spent four to five years with a coach to decentralize operations. That work moved the company from unsellable to a six-to-seven-times-earnings target. An unsolicited offer then arrived from a private-equity-backed strategic buyer running a roll-up in his industry.
The deal had three parts: $7 million cash at close, an earnout of up to $3.5 million over about two years, and $1 million of rollover equity projected to grow to about $3 million over five years. The owner wanted to allocate 6% of deal economics to three key employees, 2% each. He also wanted to pay off $4.2 million of mortgages on three properties worth about $7 million, and to fund a $1.5 million donor advised fund. Annual living costs were about $175,000. Both the business and the real estate were illiquid. Estate documents were finished just before closing.
Advisors modeled two paths with conservative return assumptions. The home-run path assumed 100% of earnout and projected rollover. Investable assets started near $7 million. Sequential tests still left the plan standing: debt payoff, a five-year long-term care stress at $10,000 a month inflated 5% a year, the $1.5 million gift, $25,000 of extra annual spending, and a 10% market pullback in consecutive years. Early cash was tight.
The middle-road path assumed 50% of earnout and rollover. Investable assets started near $4 million. The same $1.5 million gift became the largest swing factor and left about $850,000. Extra spending then depleted investable assets by age 78. A market pullback moved depletion to age 76. The owner would have needed to tap real estate, which he had said he did not want to do.
The analysis did not prescribe a choice. It showed that staging the donor advised fund, paying debt slowly, and assembling the advisory team one to two years before a letter of intent protect liquidity. Most middle-market deals are not all cash. The headline number is not the number an owner can live on.