Legality / practicality of "earnout" structure in Thailand

[brit1984]

Does anyone have any experience / knowledge of the legality / practicality of "earnout" structures in corporate takeovers in Thailand?

I might sell my business to a larger corporate with me staying on as MD to manage a new sub-division (also including some similar activities they already do) with a salary plus bonus linked to profit, which is all acceptable / attractive to me (if the price is right).

They want to apply a discount (to full / fair value) on the purchase price to protect themselves against adverse selection due to asymmetric information (fair enough as my business is too young / small, and record keeping too shoddy, to facilitate a full due diligence process) so my thought is to have some portion of the deal price deferred and paid later dependent on achievement of certain financial targets.

However, I am just wondering / worried that by suggesting such a structure I am being naive about some aspect of Thai corporate law / Asian business culture .

Any thoughts?...

[fletchsmile]

Yes they are legal, and people often do it. It's particularly useful in cases as you mention where records are incomplete (common in Asia ) and there is often a dependence for a while on the orginal owner selling out of a small busines, with them being key to making money

It could be worth you checking out the price of mid or lower tier firms for advice in this area, eg Mazars, RSM, Grant Thornton as mid tier. If they seem pricey maybe someone like Sunbelt. These should be able to offer you advice in this situation. In addition to correctly structuring legal contracts, there will be tax issues, and an advisory firm should also be able to help you in structuring the deal, as well as arriving at a fair value for the company. Of course needs to be balance vs cost, but they will be able to add value. They should also be able to help you negotiate and set prices as well as structure.

There are also various ways you could structure deferred payments. eg would you accept equity in the business, convertible loans, ordinary loan, cash. Documentation behind it is also important, and there are products that you could request to protect your interests. Also whether you are paid offshore/ onshore etc.

I've been involved in a couple myself from the acquisition side. As a qualified accountant, corporate treasurer and banker, and even being the lead finance person, I would still consider engaging an advisor, depending on size of deal as it can be a specialised area.

But yes it's do-able.

Cheers

Fletch

[brit1984]

^ bloody hell fletch - every time i ask a question you provide a well informed, thorough, and helpful answer - thanks a lot