Understanding The Language of Deals with Corey Kupfer

In this remastered episode of the DealQuest Podcast, I break down the essential vocabulary and deal types that every business leader needs to understand. Whether you're exploring your first acquisition, considering a joint venture, or looking to raise capital, understanding the language of deals is crucial for making informed decisions that drive growth.

This solo episode provides a comprehensive overview of deal structures, from mergers and acquisitions to licensing agreements and everything in between. I walk through each type of deal, explain the key distinctions, and show how businesses of all sizes can leverage these strategies. The goal is to open your mind to the full spectrum of deal opportunities available to grow your business, regardless of your company's size, stage, or available capital.

Understanding Mergers versus Acquisitions

Most people use these terms interchangeably, but there's an important legal distinction. Acquisitions are the most common deals in this space, and they can happen two ways: asset acquisition or equity acquisition. With an asset acquisition, you're buying the assets of a company. With an equity acquisition, you're purchasing stock in a corporation or membership interests in an LLC.

A true merger is different. It's a legal structure where two companies come together to form one company, often with one surviving entity. While deals get reported as mergers in the media, they're usually acquisitions from a legal perspective.

Even in genuine mergers, unless it's truly a merger of equals (which is very rare), there's typically a dominant party whose executives continue running the combined company.

The Power of Creative Deal Structures

Not every acquisition requires cash upfront. Many deals can be structured with payments over time through promissory notes, installment payments, or earn-outs based on future performance. Earn-outs might be tied to ongoing revenue, profits, or increases in those metrics.

You see these creative structures especially with smaller companies or in challenging economic environments. Sometimes the entire purchase price is structured as an earn-out with no cash upfront. These deals work particularly well when there are strategic opportunities or when target companies are looking for stability rather than immediate cash.

Down economies often reveal inefficiencies that were hidden during good times, creating opportunities for creative deal structures.

Acqui-Hires: When Talent Matters Most

Sometimes what looks like an acquisition is really just a hiring strategy. In an acqui-hire, you're not actually acquiring the company legally, you're hiring the key people. This works especially well when you need specific talent, geographic expansion, or specialized skills.

Maybe you're dealing with a great programmer or software designer who's excellent at their craft but doesn't enjoy running a business. Especially in challenging economies, business owners sometimes realize they'd rather focus on what they do best and let someone else handle the business side.

You might position this as an acquisition publicly, but behind the scenes, you're simply hiring people and potentially offering employment contracts with incentives based on revenue growth or business performance.

Joint Ventures: Two Powerful Approaches

Joint ventures come in two main forms: contractual and company joint ventures. In a company joint venture, you literally create a third entity that both parties jointly own. This new company operates separately from your existing businesses and can develop its own enterprise value.

Contractual joint ventures are agreements between existing companies without creating a new entity. Maybe you're a manufacturer partnering with a marketing company or distributor. Instead of a simple fee-for-service arrangement, you create a revenue or profit-sharing partnership that benefits both sides.

These arrangements often include separate branding, bank accounts, and marketing, even though they're structured contractually rather than as separate companies. The key is creating mutual benefit beyond traditional vendor relationships.

Strategic Alliances: Thinking Beyond Competitors

Strategic alliances provide mutual benefit to both parties, often through arrangements that many companies overlook. You can do deals even with competitors when it makes strategic sense for both sides.

From a legal perspective, strategic alliances aren't separate structures. They're typically joint ventures or other contractual arrangements. But the concept focuses on creating partnerships that provide strategic advantage to all parties involved.

Many companies miss opportunities to create these alliances, even in situations where collaboration could benefit everyone involved.

Capital Raising: More Options Than You Think

Capital raising isn't limited to high-tech companies seeking venture capital. There are multiple ways to raise money, starting with friends and family investments. Many companies successfully raise capital this way in exchange for equity or debt.

You can raise capital through debt instruments (essentially loans) or by offering equity with different rights and classes. Angel investors range from wealthy individuals who invest occasionally to more professional angels who operate similarly to venture capitalists. The key difference is that angels typically invest their own money, while VCs invest other people's money.

Private equity firms are different from venture capitalists. Private equity firms typically acquire your entire company or at least a controlling interest, while VCs usually start with minority investments that include specific protections and rights.

Licensing: The Underutilized Goldmine

Licensing represents one of the most underutilized opportunities for generating revenue. While many people think of licensing only in terms of patents and inventions, the real opportunity lies in licensing content, curriculum, and expertise.

People who appear to make money from books or speaking often generate their primary revenue through licensing. They license their training curricula, content, and expertise to others. They create licensing arrangements for online training and workshops.

The licensing business model is powerful because it requires relatively few employees while generating ongoing royalty income. You see this throughout the clothing industry, where designers license their names for various products rather than manufacturing everything directly. Even simple referral arrangements can evolve into sophisticated licensing partnerships.

Employee Deals: Retention and Attraction Strategies

Some of the most important deals you'll make are with your employees. For business owners who want to step back without selling, employee deals become crucial for retention and attraction of key talent.

These structures include bonus plans, profit sharing, phantom equity plans, stock appreciation rights, and option plans. These arrangements keep key executives engaged and allow you to maintain ownership while reducing your day-to-day involvement.

The key is creating vehicles that make sure important people stay around and remain motivated to grow the business.

Real Estate: Diversification and Security

Real estate deals serve two purposes for operating businesses: securing your business location and diversifying wealth that's often concentrated in your business.

Some business owners buy their office buildings, while others invest in unrelated real estate to diversify their wealth away from their core business. These deals help create financial security beyond your primary business operations.

The Deal Spectrum: Size Doesn't Matter

The variety of available deal types means that businesses of all sizes can find opportunities for growth. Whether you have significant capital or need to structure deals without upfront payments, there are options that can work for your situation.

Each type of deal offers different approaches for finding partners, conducting due diligence, structuring agreements, and creating value. The complexity exists, but with the right team in place, these deals become manageable and profitable.

The key insight is that there's only one difference between companies that grow through deals and those that don't: the owners and executives who do deals make the decision to pursue them and then take action.

• • • Listen to the full DealQuest Podcast episode here • • •

FOR MORE ON COREY KUPFER

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Corey Kupfer is an expert strategist, negotiator, and dealmaker. He has more than 35 years of professional deal-making and negotiating experience. Corey is a successful entrepreneur, attorney, consultant, author, and professional speaker. He is deeply passionate about deal-driven growth. He is also the creator and host of the DealQuest Podcast.

Get deal-ready with the DealQuest Podcast with Corey Kupfer, where like-minded entrepreneurs and business leaders converge, share insights and challenges, and success stories. Equip yourself with the tools, resources, and support necessary to navigate the complex yet rewarding world of dealmaking. Dive into the world of deal-driven growth today!