When evaluating competing offers with different mixes of cash, seller notes, rollover equity, and earnouts, how do we determine our real net proceeds and establish an absolute floor for cash at close?

Question

Tyler Smith · Accepted Answer

Headline price is marketing; deal structure is reality. An offer of ten times EBITDA with fifty percent cash and fifty percent back-end contingencies is frequently worth far less than an eight-times offer paid in ninety percent cold cash. To compare competing bids objectively, you must discount every contingent dollar based on its structural risk profile.

Start by calculating the probability-weighted value of each consideration bucket. Cash at close has a value of one hundred cents on the dollar, adjusted for taxes, transaction fees, and working capital true-ups. A seller note from an institutional buyer might be valued at seventy-five to eighty-five cents, depending on subordination, interest rate, and security. Rollover equity in a private equity recap should be valued conservatively at fifty to seventy cents because you lack control, dividend rights, and liquidity timing. An earnout should be modeled at zero to forty cents, reflecting the high probability of post-closing operational friction.

To avoid getting trapped by a glossy headline number, establish your non-negotiable walk-away floor for cash at close before you review letters of intent. Your cash at close must satisfy three financial thresholds: fully clear all company debt, cover all transaction costs and capital gains taxes, and fund your family wealth requirements or post-exit objectives.

Treat anything beyond your cash floor as a secondary investment decision rather than exit proceeds. If a prospective buyer cannot meet your cash-at-close floor, stop negotiating terms. No amount of creative seller financing, hypothetical equity upside, or ambitious earnout targets compensates for taking balance sheet risk on a business you no longer control.