The Case Of Triple Point Technology

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Question 1: In the case of Triple Point Technology, the non-cash components serve several important roles. First, there is considerable uncertainty around the expected growth and future performance of the company. Consequently, it can be challenging for a buyer and seller to agree on an appropriate purchase price, given differing views on the future and a buyer’s natural uncertainty. Using non-cash components (such as an earn-out) can allow for the seller to participate in the optimistic scenario and help “bridge the gap” on accepting a lower than desired purchase price. Second, buyers (especially private equity) do not have the expertise and institutional knowledge to effectively run the target business following purchase. Therefore, non-cash components (earn-outs & retained common stock) are a powerful way to align incentives and ensure the sellers have a vested interest in the continued success of the business and smooth transition. Third, management options create the ability to incentivize and attract new talent to the business, as Roger’s departure will likely create a critical vacancy to fill. Finally, non-cash components (such as a seller note) can also help raise the purchase price as financing the acquisition of a small business can often times be challenging (especially for the similar sized strategic buyer in Offer 2). Question 2: In valuing the two offers that TPT received, there are three main components in which the founders’ likely place considerable value
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