How Buyers Structure
an Offer

Why Deal Structure Matters as Much as Price

This article is for owners who have received an offer or are preparing to enter a sale process, and who want to understand what a buyer's proposed terms really mean. If you want the mechanics of running the process itself, our Lower Middle Market M&A Process article covers that in detail. Here, we focus on the terms inside the offer.

Structure carries more weight below the megadeal tier, where financing costs and valuation gaps push buyers to build offers that bridge the difference. PwC's global deals research points to higher interest rates, persistent valuation gaps between buyers and sellers, and a large backlog of private equity-owned companies still waiting to exit, all of which push mid-market buyers toward creative structure rather than higher cash prices. Treat that as directional context rather than a precise read on lower-middle-market terms, since PwC's figures are global and weighted toward much larger transactions.

When cash is expensive and buyers and sellers disagree on price, structure becomes the tool that closes the gap. Understanding the six ways it does that puts you in a stronger position to evaluate an offer instead of accepting one.

Cash at Closing

Cash at closing is the amount a buyer wires to you the day the deal closes. It is the cleanest form of payment and the baseline every other structure is measured against. When a buyer defers part of the price, ties it to future performance, or asks you to keep a stake, they are moving money out of this bucket and into something less certain.

Few lower-middle-market deals pay 100% cash with no other terms attached. Even an offer described as “all-cash” usually carries a holdback, an escrow, or a post-closing adjustment that reduces what actually reaches your account on day one. A buyer might hold back a portion for a set period to cover any problems that surface after closing, or set aside funds in escrow against representations you made about the business. The headline number and the wire amount are rarely the same figure.

It also helps to separate cash at closing from enterprise value. Enterprise value is what a buyer assigns to the business as a whole, before debt, cash on the balance sheet, and working capital adjustments are settled. Cash at closing is what lands after those items are netted out. Two owners can agree to the same enterprise value and walk away with very different amounts of cash, depending on how much debt gets paid off and how the other terms are structured. Our EBITDA and business valuation basics article walks through how enterprise value is built if you want the underlying math.

For most owners, cash at closing is the number that matters most because it carries no future risk. The other five structures trade some of that certainty for other benefits, and each one deserves scrutiny on its own terms.

Earnout Agreements

An earnout ties part of the purchase price to how the business performs after closing. Instead of paying the full amount at closing, the buyer pays a base price now and promises additional payments if the company hits agreed targets over a set period. Owners often accept an earnout to close a gap between what they believe the business is worth and what the buyer will pay upfront.

Earnouts are also the most common source of post-closing conflict, because the buyer controls the business afterward. Once the buyer owns the business, it can change pricing, cost structure, or accounting policies, and any of those changes affects whether your targets get met. Delaware Vice Chancellor J. Travis Laster put it plainly, noting that an earnout “often converts today's disagreement over price into tomorrow's litigation over the outcome,” as cited in an A&O Shearman analysis published by the Harvard Law School Forum on Corporate Governance.

The metric you agree to measure against deserves close attention. Sellers generally prefer revenue targets because top-line sales are harder for a buyer to manipulate through cost or accounting choices. Buyers prefer EBITDA or net income because those reflect actual profit. EBITDA often becomes the compromise, since it captures operating costs while excluding items like interest and taxes.

Ambiguous milestones cause as many fights as the metric itself. In one case cited by the same source, undefined terms like “Company Products” led to a multimillion-dollar judgment for the seller after the buyer folded acquired technology into its own existing products. Before you sign, push for milestones defined in specific, objective language, with worked examples of what counts and what does not. You should also negotiate reporting and verification rights so you can see the numbers behind the payment calculation.

For calibration, the median earnout outside life sciences ran about 24 months and represented roughly 31% of closing payments in 2024, according to the SRS Acquiom 2025 M&A Deal Terms Study, cited in the Harvard Law School Forum. Treat those figures as ranges, not a standard your deal should match. The larger the earnout relative to the upfront price, and the longer the period, the more likely a dispute becomes. A smaller earnout paid over a shorter window keeps more of your proceeds certain and reduces the years you remain exposed to a new owner's decisions.

Rollover Equity

With rollover equity, you take part of your sale proceeds as an ownership stake in the post-sale company instead of cash at closing. A private equity buyer forms a new company that holds its investment and your rolled-over stake side by side. In middle-market deals, rollover often falls in the 10% to 30% range, though the exact figure depends on the deal.

Buyers ask for rollover for two practical reasons. It keeps you invested in the outcome, so you have a reason to stay and help the business grow. It also lets the buyer spend less cash upfront, which matters for firms doing several deals at once.

The appeal for you is the “second bite of the apple.” Private equity firms typically hold a company three to seven years before selling again, and if the business grows, your minority stake can be worth far more at that second sale. Axial models a $10 million deal with a 25% rollover where the company grows to $25 million in five years. Your rolled stake returns $6.25 million at the second exit, bringing total proceeds to $13.75 million against $10 million taken all in cash.

That clean math only holds if you and the buyer own the same class of equity, and usually you do not. The buyer typically holds preferred equity that gets paid first, often with a liquidation preference and an annual preferred return stacked on top. Using the same $25 million exit, Axial shows how a 1x preference plus an 8% preferred return cuts the seller's common-equity return to roughly $3.6 million instead of $6.25 million. The business performed identically, but the capital structure changed who got paid.

The equity class you receive matters more than the rollover percentage you negotiate. A 25% stake in junior common equity behind a large preferred stack can pay far less than the headline number suggests. Rollover equity is also illiquid until the buyer sells again, on a timeline that is rarely written into the contract, and as a minority holder you lose your say over strategy, hiring, and capital decisions.

Ask what class of equity you are getting, what sits ahead of it, and how proceeds are split before you weigh the upside. Our comparison of a strategic buyer versus a private equity buyer covers who typically asks for rollover and why.

Seller Notes

A seller note is deferred purchase price you agree to be paid back over time, documented as a debt the buyer owes you with interest. Instead of receiving that portion in cash at closing, you carry it as a loan and collect principal and interest across the life of the note. Buyers rely on this structure to bridge the gap when their senior or SBA financing stops short of the full purchase price, and a note signals to their lender that you believe in the business going forward.

Seller notes are more common than most owners expect, particularly in smaller transactions where buyers rely on SBA financing that does not cover the full purchase price. One industry estimate puts seller financing in the majority of small business sales, with all-cash deals as the exception rather than the rule (M&A Seller Financing Guide). Treat that figure directionally. In the lower middle market, seller notes are usually smaller, often 10% to 30% of the purchase price.

The risk owners most often underweight is subordination. Your note typically sits behind the buyer's senior lender, whether that is a bank or an SBA loan, and the senior lender gets paid first. A note can be current under its own terms yet remain unpayable because the senior lender has blocked payment, meaning no principal or interest reaches you. Under SBA financing, the lender often requires your note to sit on full standby for some or all of the SBA loan term, meaning no principal or interest is paid during that period. Standby terms vary by deal, so confirm the exact length and conditions before you agree to carry the note.

Typical terms give you a benchmark for judging an offer. Interest rates commonly run 6% to 8% and repayment usually lasts three to seven years. Advisors commonly recommend sellers push for a down payment of at least 50%, since notes with less than 30% down are a frequent source of buyer default.

Before you agree to carry a note, negotiate the protections that make default less likely and recovery more realistic. Owners commonly ask for a personal guarantee, a UCC lien on business assets, an acceleration clause on resale, and rights to periodic financial statements.

Working Capital Adjustments

Working capital is the cash a business needs to run day to day, mostly receivables and inventory minus payables. When a buyer acquires your company, they expect a normal level of working capital to come with it, so the business can keep operating without an immediate cash injection. Most deals set a working capital peg, which is a target amount agreed in the letter of intent or purchase agreement.

Your final proceeds get adjusted against that peg. If the business closes with working capital below the peg, the purchase price drops by the shortfall. If it closes above the peg, you get paid the difference. Buyers and sellers rarely calculate the exact number at closing, so they use an estimate and then run a true-up in the weeks after. The true-up compares actual closing working capital to the peg and moves cash accordingly.

That true-up is one of the more common places for post-closing disagreement. The peg depends on how you define a normal level of working capital, which accounting methods apply, and which accounts count. Two reasonable parties can read the same balance sheet and reach different numbers. A peg set too high quietly hands the buyer a price reduction after you have already signed the deal.

Do not accept a buyer's first proposed peg at face value. Buyers typically open the negotiation using a trailing average of your own historical working capital, and how that average is calculated, which months it covers, and which accounts it includes all shape whether the resulting peg is fair. We help owners review the proposed peg and true-up language before it is locked into the agreement, so the mechanic reflects how the business actually runs rather than a calculation that favors one side. Our deep guide on the working capital peg works through the arithmetic trap by trap.

Staged and Multi-Step Deals

In a staged deal, the buyer purchases a controlling stake now and defers buying the rest for a set period. A common version is the majority recapitalization with a deferred buyout. The buyer might take 60% at closing while you keep the remaining 40%, with that second purchase happening in two to five years through a put and call option agreement.

The put and call mechanic decides who controls the timing of that second sale. A call option lets the buyer force you to sell your remaining shares, and the buyer controls that option for most of the window. A put option lets you force the buyer to purchase your shares if the buyer never calls, though it usually opens only near the end of the buyer's window and for a short period. If neither side acts, the agreement lapses and you keep your minority stake.

Buyers increasingly propose this structure when they are paying a healthy multiple and want to address uncertainty in the valuation. Taking control without full exposure lets them integrate the business, resolve problems, and keep you motivated to run it well before they commit to owning all of it.

The second tranche is typically priced off future EBITDA rather than a number fixed at closing, and that mechanic is where the structure rewards or penalizes you. If the buyer paid 10 times EBITDA for the first 60%, the remaining 40% might be priced at 10 times an updated EBITDA calculated at the exercise date. Your proceeds on the second stage depend on how the business performs under a new majority owner, which is why sellers negotiate protections against buyer actions that could suppress the price and expert determination for pricing disputes.

Because you no longer control the business during the interim period, review who runs it, how EBITDA is measured, and what happens if performance falls short before you accept a staged offer.

How the Six Structures Compare

When you get paid and who carries the risk after closing set these six structures apart from each other. The table below lays those tradeoffs out side by side, and full detail on each one sits in the sections above.

Most real offers combine several of these at once, so read the table as building blocks rather than mutually exclusive choices.

Getting Structure and Price Both on the Table

Structure is negotiable, and the amount of leverage you hold depends heavily on how many buyers are at the table. A single buyer sets the terms because you have no alternative to compare against. When you run a competitive process and several buyers submit offers, you can push a buyer to increase cash at closing, shorten an earnout period, or improve the terms on a seller note, because that buyer knows you can walk to the next one.

An unsolicited offer can be worth exploring, but one buyer's offer does not necessarily represent the full market terms available for your company. The same is true of structure. A buyer who proposes a 30% rollover or a two-year earnout is proposing a starting point, not a fixed reality. Owners who accept the first structure they see often give up cash and control they could have negotiated back. Our Lower Middle Market M&A Process article walks through how a competitive process creates that room to negotiate.

Reading an offer well means separating the headline number from the terms underneath it, and comparing structures across several buyers rather than one proposal. That comparison takes judgment about fair market terms, not just a valuation figure. Terms used throughout this article, including earnout, rollover, and true-up, are defined in our M&A glossary for the lower middle market.

If you have received an offer or are considering entering a sale process, we can help you evaluate whether the proposed structure reflects fair market terms and what a competitive process could change. Reach out to Salt Creek Advisory to talk through your offer before you respond to it.