The INFLUENCE of SELLER CARRY NOTES in TRANSACTION PRICING of SALES of CLOSELY HELD BUSINESS ORGANIZATIONS

The concept of business exit has been relatively well explored in the literature in terms of publicly traded companies. However, exit from privately held companies has received much less attention. The principal question to be examined by this research is to determine whether or not there is an increase in the transaction price of a privately held firm upon owner exit when a seller carry note is part or all of the consideration. Using a sample of privately held firm sales, we find that the existence of a seller carry note is positively related to a higher transaction price in the sale of these companies. This finding implies a spillover effect that indicates the full risk of carrying the note is not borne by the rate of interest on the note. This information is important to business exit outcomes for owners and managers of these firms as they negotiate the transaction price for their companies and to researchers attempting to increase their understanding of owner exit from privately held business organizations.