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Business services deal making: Five critical partner compensation questions to consider

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Deal negotiating is a complex and sometimes contentious undertaking with many financial and operational aspects for private equity firms and strategic buyers to consider. One important consideration, especially related to potential business and professional services industry acquisitions, is the target company’s partner or owner compensation structure.

When acquiring a business services firm, buyers are essentially purchasing human capital. People are the primary assets of a business services company and as such, there are many variables to consider, especially when it pertains to compensation, which is typically the largest expense on a business services company’s income statement. Potential buyers must consider how every part of the historical partner or owner compensation plan impacts revenue, profitability and overall value of the business and, inevitably, how it influences a future profitability post-sale. This may be particularly difficult for a private equity firm that has not historically invested in this industry.

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