What Does Owner's Net Proceeds Mean?
The owner's net proceeds is the final cash consideration received by a seller after deducting all costs and closing date obligations. If the seller has engaged an investment banker, the first cost deducted is the success fee. Following that, all closing date obligations, such as all outstanding debt, deferred taxes, etc., must be paid before the owner receives the cash proceeds on the sale. The owner must then ensure that all taxes are paid or allowed for, which further reduces the owner's net proceeds.
Divestopedia Explains Owner's Net Proceeds
When a transaction is structured as an all cash deal, it is simple to compute the owner's net proceeds. However, most transactions usually include some form of non-cash consideration which may include equity in the buyer, a seller note or an earnout. In this case, a seller must ensure that the cash consideration being received is sufficient to cover all costs including taxes and closing date obligations.
If the non-cash consideration in a deal is so high that the owner is left with little to no net cash proceeds, then it may be better to pass on the transaction or renegotiate for a higher cash component even if the purchase price is lower. Alternatively, the seller may end up with no net proceeds once all costs are accounted for and only non-cash instruments (which carry risk because they can only be monetized in the future) to show for the sale of a company.