When I met the founder of Bear Aware in 2020, she told me that the Old Faithful location was basically a done deal. She had been working with the Park Service for years on getting that open.
I wanted to believe her, but if it could be delayed for years already, it could certainly be delayed again.
We wrote that into the deal. If Old Faithful opened in year one, the headline price remained. Every year that it didn’t open, the purchase price was reduced by an agreed-upon amount per year of delay.
It opened in August of 2023.
She did not love that clause, and we went back and forth on it a lot. I understand why, but at the end of the day, neither of us could control that outcome. It was a lot of what I was paying for. Most earn outs ties the seller’s payments to something that either the seller or the business owner can control. Unfortunately, this one was tied to the National Park Service and their timeline.
From her perspective, it felt like she had done the majority of the negotiating to get this underway.
From my side, it was pretty simple. The business had maybe $60,000 of real assets, and the profit was basically her salary, but that wasn’t worth much. What I was buying was the location and the relationship inside the national park, and if there were two locations instead of one, it would be worth a lot more.
She agreed because she genuinely believed it would be open on time.
This structure worked because we financed the business over 3 years. Every year, there was a payment coming, and every year there was something to adjust if that opening date was not met.
If you’re selling, here’s what I take from this: anything you tell a buyer about the future is either in the price or it isn’t. If it’s in the price, expect the buyer to put conditions on it. A buyer who is promised something but then doesn’t see it come to fruition is not going to feel great about that in the future.
If you’re buying, don’t pay for a guarantee. Build a schedule and performance metrics that need to be met.
I would have happily paid full price if Old Faithful had opened when everyone said it would. When it did finally open in August, three months after the summer season started, it was a very slow start. Nobody knew we were there, and we definitely lost money on operating the location that year. The second season was also bad. It took three years to get this location to stand on its own.
Looking back, I believe the deal was very fair, and everybody received appropriate value for what they put on the line.