How Pricing Structures Ensures Balance in an Acquisition (Source: Deminor NXT)

In a business sale, the price is rarely a fixed amount. What is often proposed as a 'sale price' is actually a combination of various financial mechanisms intended to distribute risks, facilitate financing, or make the agreement possible. The most commonly used instruments are earn-outs, deferred payments, and vendor loans. Each of these mechanisms has its own logic, but they share a common purpose: to make a deal structurally more balanced, provided they are well crafted.

The price is more than an amount: it’s about timing. In today’s context, with tight financing, uncertain valuations, and cautious buying behavior, it’s rarely feasible to pay a sale price in full at closing. A spread or conditional payment is then not a stopgap but a strategic tool.

Perhaps the best-known example is the earn-out. Here, part of the price is linked to the future performance of the company (usually based on financial KPIs such as revenue or EBITDA). It's a way to bridge a valuation gap: the buyer limits their risk, and the seller retains an upside if expectations are met. A classic alignment instrument, but also a potential source of tensions if the terms are vague or cause interpretation problems. This method often assists in aligning the new customer base with the target company’s future goals.

The deferred payment is simpler in nature. It’s not dependent on performance; it’s merely a payment of part of the price at a later date, such as after 12 or 24 months. For the buyer, this relieves liquidity pressure; for the seller, it’s trusting the buyer's creditworthiness.

In a vendor loan, the seller goes a step further: they provide financing to the buyer themselves. This happens when external financing is hard to obtain, or when a vendor loan can speed up the closing. But it also brings risks for the seller, requiring a solid contractual arrangement: duration, interest rate, securities, repayment modalities.

Three mechanisms, three different objectives. These instruments are not interchangeable as they address different situations.

• The earn-out is suitable when a significant part of the valuation depends on future results and can generate value.
• The deferred payment is a cash flow instrument: it doesn’t change the value but spreads the payment over time.
• The vendor loan is a part of the financing mix: it replaces or strengthens external credit lines.

In practice, these mechanisms are often combined. Entrepreneurs can opt to receive a partial payment at closing, followed by a deferred payment, an earn-out tied to performance, and a vendor loan as additional financing. Such a structure can work if each component is correctly documented—legally, financially, and operationally.

An example: a company is sold for €1 million. The buyer pays €600,000 at closing, €200,000 via a deferred payment after 12 months, and €200,000 as an earn-out based on EBITDA goals. Because bank financing is limited, the seller also provides a vendor loan for three years. This combination can make the deal possible—but only if each part is well-documented, reflecting both business valuation and possible synergies.

Balanced structures require clear agreements. These tools create value, but only if they are clearly and correctly drafted. Most disputes after closing do not arise from bad intentions but from unclear formulas or incomplete agreements.

With earn-outs, precision is crucial. What exactly is being measured? EBITDA? Net profit? What adjustments are allowed? Who verifies the calculations? What if the buyer restructures the organization or shifts costs post-acquisition?

With a deferred payment, it’s possible to build in guarantees. What if there’s a default? Are there securities, liens, or fallback clauses provided?

A vendor loan must be treated as a full-fledged credit instrument, with interest, duration, repayment terms, securities, and a clear place in the financing structure. Usually, the vendor loan is subordinated to other creditors.

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A price is just the beginning: structure determines the end result. These mechanisms reflect a broader evolution in M&A: transactions are becoming more structured, better thought out, and risk-aware. The price is no longer a given but an exercise in balancing today’s value, tomorrow’s potential, and trust between the parties.

At deminor NXT, we support shareholders in structuring complex transactions. That means anticipating risks, aligning interests, and ensuring agreements hold up, not only at closing but also in the years after the completion date.

Because a good deal starts with the right price but ends with a structure that works for all parties.

Do you have questions or need advice? Don’t hesitate to contact us.

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