The buyer offered an 80 percent cash, 10 percent seller note, and 10 percent rollover equity deal structure. How do we evaluate the true risk-adjusted enterprise value of this package, and how should we negotiate the terms of the non-cash components to protect our net payout?

Question

Tyler Smith · Accepted Answer

A headline purchase price is only as good as the probability of collecting each dollar. An 80/10/10 structure splits your payout across three fundamentally distinct risk profiles.

The 80 percent cash represents confirmed liquidity at close, subject only to net working capital adjustments and standard escrow holdbacks. This is your safe baseline.

The 10 percent seller note is subordinated debt. Because it sits behind the buyer senior lender, bank covenants can freeze your interest and principal payments under a subordination agreement if the business hits turbulence. Protect this note by negotiating a commercially viable interest rate, monthly or quarterly amortization, and a strict payment standstill limit of no more than 90 to 180 days if a senior bank default occurs.

The 10 percent rollover equity is high risk, high reward. It represents illiquid minority shares subordinate to all corporate debt. Demand to roll into the exact same security class as the lead private equity sponsor. Insist on pro-rata distributions, tag-along rights, preemptive rights against dilution, and ongoing financial reporting rights. When evaluating the offer, discount the non-cash consideration to its risk-adjusted present value before agreeing to headline enterprise value.