The purchase consideration refers to the total value paid or agreed to be paid by the acquirer to acquire another company or business.
Here are the common components of purchase consideration:
⏺ Cash payment: This represents the amount of cash paid by the acquirer to the seller as part of the purchase consideration.
⏺ Equity instruments: The acquirer may issue its own equity shares as part of the purchase consideration. This means that the seller becomes a shareholder or equity holder in the acquiring company.
⏺ Contingent consideration: These are additional payments that are contingent upon the achievement of specific future events or performance targets. These payments are typically structured as earn-outs, milestones, or performance-based payments.
⏺ Assumption of liabilities: In certain acquisitions, the acquirer may agree to assume or take over specific liabilities of the target company. These liabilities could include debt, leases, contractual obligations, or other financial obligations.
⏺ Non-cash consideration: This includes real estate, intellectual property, inventory, or other tangible or intangible assets as part of the purchase consideration.
⏺ Stock options or stock-based compensation: In some cases, the purchase consideration may include the assumption or conversion of stock options or stock-based compensation plans held by employees or key personnel of the target company.
⏺ Earnest money or deposit: In certain transactions, the acquirer may provide an upfront payment or deposit as a show of good faith or to secure exclusivity rights during the negotiation and due diligence period.
It’s important to note that the composition of the purchase consideration can vary significantly based on the negotiated terms of the acquisition, the industry, the financial condition of the target company, and other factors.
The specific components and their relative proportions will be outlined in the acquisition agreement or purchase contract.
