Let’s imagine Liverpool’s sale of Luis Suarez for £75m to Barcelona as an M&A deal that needs careful structuring. Without knowing the real deal terms, here’s how we think it should have been structured.
Let us recall the background first. The player wanted to move, already last year. Liverpool was desperate to keep him for at least another year. Equally, they had to keep him motivated to perform. Barcelona was willing to pay but wanted certainty on terms, and that the transfer would happen; a world-class striker is the ultimate depreciating asset to time is quite literally money. And during a year of transition while waiting to change clubs, anything can happen (enough said).
Here is how we would suggest it would have been structured.
Back in 2014 when Suarez really wants to move, Liverpool sets a very high fee one year in the future (£75m qualifies!). The club then sells Barcelona a call option (option to buy) for say £10m on Suarez exercisable one year later for £75m, less £10m paid upfront.
Let’s look at how the differing deal objectives have been achieved.
Suarez gets a clear path to his club of choice, delayed only by a year. He also gets a very high price put on him, validation of his galactic status.
Liverpool gets £10m guaranteed, even if they don’t sell the player (Barcelona has an option, not an obligation). Crucially, by setting such a high transfer fee within an option, they give Suarez huge incentive to perform. Barcelona do not have to exercise the option if his performance is too poor; the higher the future fee, the higher the bar for him to “demonstrate his value” in the intervening season.
Barcelona get certainty but they also get to hedge their bets, in case the intervening year shows up any reasons why they should not buy Suarez (!!).
Structuring deferred and contingent payments is core to M&A deal-making. The secret ingredient is the experience to know how to align everyone’s incentives as much as possible.
Posted by Victor Basta @MaExits