Most founders focus heavily on the headline price and pay too little attention to deal structure. The terms below determine your actual outcome. Founders who fixate on headline EV without negotiating deal structure aggressively consistently leave meaningful value on the table.
Headline enterprise value
The number on the LOI cover page. The starting point, but rarely what you actually receive.
Cash at close
The actual dollars wired to your bank account at closing. After working capital adjustments, net debt deduction, escrow holdback, transaction expenses, and tax payments, cash at close typically runs 60% to 85% of headline enterprise value.
Working capital target and adjustment
Almost every transaction includes a target net working capital based on the trailing 12 to 24 month average. Closing below the target reduces your purchase price; closing above adds to it. Adjustments routinely move final purchase prices by hundreds of thousands or millions of dollars. Manage working capital carefully in the months before close and understand the target methodology.
Escrow holdback
Typically 5% to 15% of purchase price held in escrow for 12 to 24 months to cover potential indemnification claims for breaches of representations and warranties. Released to you in full in most cases, but not available at close.
Earnouts
Performance-based consideration tied to post-close revenue, EBITDA, customer retention, or other metrics over 12 to 24 months. Common in transactions involving customer concentration, recent volatility, or founder departure. Typically run 10% to 30% of total consideration in standard deals; higher in specific situations. Aggressive earnout term negotiation matters — definitions, measurement methodology, and protection against buyer interference all affect actual realization.
Rollover equity
Reinvestment of part of your proceeds into the buyer’s go-forward equity, typically 10% to 30% in PE-led transactions. Preserves your upside in the buyer’s growth thesis but is illiquid until the buyer’s eventual exit.
Seller financing
A promissory note from the buyer to you, typically 10% to 30% of price in smaller transactions. Paid over 3 to 7 years with interest, but not cash at close. More common in deals where the buyer has financing constraints or where the transaction structure benefits from extended payment.
Reps and warranties insurance (RWI)
Insurance increasingly common in lower middle market transactions, where premium is paid (often by the buyer) to insure against breaches of representations and warranties. Reduces seller indemnification exposure and can substantially reduce escrow holdback requirements.
Employment terms
If you continue with the business post-close, your employment agreement, compensation, equity participation, and exit provisions all matter. Founders frequently focus on the headline price and accept unfavorable continuing employment terms that affect their post-close experience for years.
Tax structure
Asset sale versus stock sale, allocation of purchase price among asset categories, treatment of escrow and earnout, and personal tax planning all materially affect after-tax proceeds. Tax planning should begin alongside the structural negotiation, not after.
