A prospective buyer offered an eight-million-dollar purchase price that hits our headline target, but the offer is structured as fifty percent cash at close, twenty-five percent seller note, and twenty-five percent earnout. How should we analyze and counter this consideration structure to protect our real proceeds?

Question

Tyler Smith · Accepted Answer

A headline valuation is purely cosmetic if the deal structure shifts the majority of closing and post-closing risk onto your shoulders. In this structure, fifty percent of your purchase price is contingent on future events or junior debt obligations that you cannot control post-sale.

Treat the earnout portion as zero dollars until proven otherwise. If the buyer controls capital expenditures, operational hiring, sales strategies, or overhead allocations, hitting an earnout target is notoriously difficult. If you accept an earnout, insist that it ties strictly to top-line gross revenue or gross margin rather than net income or EBITDA, which can easily be burdened by corporate allocations.

For the twenty-five percent seller note, evaluate the buyer's capital stack. If the buyer is funding their cash portion with heavy senior bank debt, your seller note is completely subordinated. Ensure the seller note carries a competitive market interest rate, requires monthly or quarterly principal amortization, and contains a covenant stating that a sale of the business triggers full note acceleration.

To counter this offer effectively, restructure the proportions. Push for seventy-five to eighty percent cash at close. If a gap remains, convert the earnout into a secured seller note with clear interest terms, or negotiate a smaller equity rollover where your units share pari passu with the sponsor's equity. Never trade guaranteed closing cash for unsecured deferred promises without demanding contractual protections.