The number on the front page is not the number you get
Two offers can have the same headline. €18M, €18M. One pays €18M in cash at close. The other pays €10M in cash, €4M as a seller note, €3M as an earn-out, and €1M as rollover equity. They are not the same offer. In a bad scenario, the second offer is worth €12M. In a good one, it might be worth €20M. Either way, it is not €18M.
Most first-time sellers underestimate how much of the negotiation happens after the price is agreed — in the structure. Here is what you need to understand before you sign anything.
Earn-outs
An earn-out is money paid after close, conditional on the business hitting agreed targets. Usually revenue, EBITDA, or a specific contract win.
Why buyers use them. To bridge a gap in valuation. The seller thinks the business is worth €20M; the buyer thinks €17M plus €3M if things go as the seller promised. Earn-outs let both sides be right.
Why they go wrong. Because after close, the buyer controls the business — not you. The accounting decisions that determine whether the target is hit are now theirs. The investment decisions that affect next year's EBITDA are now theirs. The strategic choices that delay revenue are now theirs.
What to negotiate before you sign.
- Short windows. Twelve months, eighteen at the outside. Three-year earn-outs almost always disappoint sellers.
- Simple, transparent metrics. Revenue is easier than EBITDA; EBITDA is easier than adjusted EBITDA. Anything described as "adjusted" is a negotiation waiting to happen.
- Protective covenants. The buyer agrees not to take specific actions during the earn-out period that would damage your number — closing your office, transferring contracts, raising overhead allocations.
- Acceleration on change of control. If the buyer sells the business mid-earn-out, you get paid in full.
Seller notes
A seller note is the buyer paying part of the price over time, with interest, instead of all at close. Effectively, you are lending them part of the purchase price.
Why buyers use them. To reduce cash outlay at close and to keep you commercially aligned during the handover.
What to watch.
- Interest rate. Should be at or above commercial rates for unsecured debt — typically 6–10% depending on environment. A 2% seller note is a discount to the headline price, not a financing tool.
- Subordination. Most seller notes sit behind acquisition debt. That is normal, but understand what it means: if the business gets into trouble, you are paid after the bank.
- Security. Personal guarantees from buyer principals or security over specific assets materially change the risk profile. Ask.
- Trigger events. Make sure the note accelerates on a change of control, a material breach, or a sale of assets.
Rollover equity
Rollover equity is when, instead of taking all the proceeds in cash, you reinvest a portion as equity in the new structure. You become a minority shareholder in the buyer's vehicle.
Why it appears in offers. It signals alignment and gives the seller upside if the buyer's broader plan works. For sellers who believe in the buyer, it can be the most valuable part of the deal.
What it actually is. A minority equity stake in a private company you do not control. Illiquid. Subject to the buyer's governance, dividend policy, and exit timing. Worth nothing until there is a liquidity event you do not control.
Questions to ask before agreeing.
- What are the tag-along and drag-along rights? If the buyer sells, do you get to come along on the same terms?
- What is the exit horizon? A permanent-capital buyer with no planned exit changes what rollover equity even means.
- What information rights do you have? As a minority, you can be locked out of board-level information unless the documents say otherwise.
- Are you investing alongside the same shareholders, on the same terms? Or is your stock a different class with weaker rights?
The principle that ties them together
Every non-cash element of a deal transfers risk from the buyer to the seller. That can be fine — sometimes it is the right answer. But you should never accept structured consideration without understanding which risk you have just agreed to carry, and being paid appropriately for carrying it.
A clean all-cash deal at a slightly lower headline is often worth more than a structured deal at a higher one. Sellers who run the numbers honestly almost always reach the same conclusion.