Price vs Structure

Headline Price vs Deal Structure: Why the Highest Offer Is Not Always Best

When owners talk about selling their business, the first question is almost always: “What price can I get?” It’s natural to focus on the biggest number on the page – the headline price.

But in real SME deals, that number is only the surface. What matters much more is how that price is paid: how much is cash on closing, how much is deferred, what sits in a vendor loan, what depends on future performance, and how much risk stays with you and with the company.

I focus on buying one understandable SME at a time in Poland and nearby markets, committing my own financial resources alongside bank financing and, in some cases, co-investors. That means I’m less interested in the loudest headline and more interested in whether the structure is realistic – for you as the owner, for the business, and for anyone providing debt.

This article unpacks why the highest offer is not always the best, and how to read the structure behind the number.

Why headline price is only one layer

A typical offer might say, “€5 million for 100% of the shares.” It sounds clear. But for an owner, the real questions are:

• How much of that €5m do I actually receive at closing?

• What part is paid over time, and on what conditions?

• What depends on the future performance of the business?

• What guarantees am I giving, and for how long?

• What risk remains on my side if things go wrong?

Two offers can show the same headline number and feel completely different in practice. One may give you a solid base of cash on closing and a manageable vendor loan. Another may be heavily dependent on an earn-out over several years, with strict conditions that are hard to meet once you are no longer in control.

For a buyer, structure is not a trick. It is the main tool to balance:

• risk between buyer and seller,

• debt load on the business,

• and motivation of everyone who stays in the company.

The main building blocks of deal structure

When you strip away the narrative, most SME buyout offers are built from a few standard elements. Understanding them makes it much easier to compare competing proposals.

1. Cash at close

This is the money you receive on the day the deal completes.

• It is the safest part of the price from your perspective.

• For the buyer, it is also the heaviest part in terms of funding – they need equity, bank debt, or both.

Higher cash at close usually means lower risk for you, but more pressure on the buyer and the company. There is always a trade-off.

2. Deferred payments / instalments

Deferred payments are fixed amounts paid over time, not directly linked to future performance.

Examples:

• fixed instalments over 2–5 years,

• sometimes with interest, sometimes without.

They are less secure than cash at close:

• You depend on the buyer’s ability and willingness to pay.

• If the company struggles, these payments may need to be renegotiated.

But they are also less uncertain than a pure earn-out, because they do not depend on hitting specific targets.

3. Vendor loan

A vendor loan (seller loan) is when you lend part of the price back to the company or the buyer and get repaid over time with interest.

From your side:

• you become a creditor,

• you rank behind the bank in many structures,

• you earn interest, but you carry risk if cash flow weakens.

From the buyer’s side:

• it reduces the need for outside equity,

• it shows you are still economically committed to the business,

• banks often like to see this alignment.

Vendor loans can be a healthy part of structure if the amount is reasonable and the company’s cash flow can support the repayments after covering bank debt and operations.

4. Earn-out

An earn-out is a part of the price that depends on future performance: revenue, EBITDA, or other metrics over an agreed period.

For you as an owner:

• upside: if the business performs very well after the sale, you can receive more;

• downside: if targets are not met, you may never see that part of the price.

Risks with earn-outs:

• You no longer control every decision, but your money depends on results.

• Definitions matter: what exactly counts as EBITDA, which costs are included, how are investments treated, etc.

• Disputes can arise if expectations are not aligned.

Earn-outs are not bad by definition, but a structure that relies heavily on them is very different from a structure with mostly fixed, visible cash flows.

5. Guarantees, security and covenants

Behind the numbers sit the legal and financial conditions:

• Warranties and indemnities: what exactly you guarantee about the business (taxes, legal disputes, hidden liabilities), and for how long.

• Security: whether deferred payments or vendor loans are secured against assets or shares.

• Covenants: conditions linked to bank debt (for example, keeping certain leverage and coverage ratios) that the company must respect.

These elements affect:

• your risk of having to give money back later,

• the company’s flexibility,

• and the chance that the deal actually closes and stays stable.

How buyers think about structure

From a buyer’s perspective, structure is not only about protecting themselves. A good structure also protects the company.

If a buyer uses too much debt and promises too much guaranteed payment to the seller, three things can happen:

• The company spends years under heavy pressure just to service debt.

• Management has no room to invest or deal with normal shocks.

• Any small downturn threatens both the bank covenants and the seller’s deferred payments.

A disciplined buyer will try to:

• keep Debt / EBITDA and debt service at a level the business can realistically support,

• leave some buffer in cash flow for bad years,

• align incentives so that you and the management team are motivated during the transition without leaving you exposed forever.

From the outside, this can look like “lower cash now”. In reality, it is often the difference between a deal that closes and survives, and a deal that looks good on paper but never gets to the finish line.

Same price, very different deals: a simple example

Imagine two offers for your company. Both say:

“Headline price: €5 million for 100% of the shares.”

At first glance, they look identical. But the structures are different.

Offer A

• €3.5m cash at close

• €1.0m vendor loan over 5 years, with reasonable interest

• €0.5m fixed deferred payment in year 3

• Balanced warranties, standard tax and legal protections

• Conservative bank debt, with a comfortable buffer in cash flow

Offer B

• €2.0m cash at close

• €1.0m vendor loan, subordinated and unsecured

• €2.0m earn-out over 4 years, tied to ambitious EBITDA targets

• Wide warranties, strict clauses that allow price reductions

• Aggressive bank leverage, with tight covenants

On paper, both offers are “€5m”. In practice:

• Offer A gives you more security and gives the company more breathing room.

• Offer B gives you less certainty, ties a big part of your price to a future you no longer fully control, and leaves the business with heavy obligations.

For a co-investor, these two offers also look very different: same headline, but completely different risk, probability of closing, and probability that everyone is still happy three years later.

Key questions for owners (and their advisors)

When you look at an offer, it helps to move away from “Is €5m a fair price?” to more focused questions:

• Cash vs later:
  How much do I actually receive on closing?
  How much is fixed later, and how much depends on performance?

• Conditions:
  What exactly has to happen for me to receive the full headline price?
  How realistic is that, given the plan and the new owner’s strategy?

• Risk and security:
  Are deferred parts and vendor loans secured in any way?
  What happens if the company has a bad year, or if a key client leaves?

• Impact on the business:
  With this structure, will the company have enough room to invest, handle shocks and treat people fairly?
  Or will the combination of bank debt, vendor loan and earn-out force constant short-term decisions?

• Probability of closing:
  Is this structure something a bank is likely to support?
  Does the buyer have a credible plan to fund both closing and post-deal needs?

For advisors and brokers, one of the most valuable services is to translate offers from “X million” into a simple set of comparable parameters: payment profile, risk on the seller, load on the company, and practical chance that the deal will actually close.

For Those Involved in SME Deals

If you’re an owner, co-investor or advisor comparing offers on a real business, it’s worth getting into the habit of reading structure before reacting to the highest number on the page. If you’d like more practical notes like this on how SME deals are really built in the lower mid-market, you can subscribe to the weekly field notes email on my site — one short, concrete perspective from the buy-side each week. And when a specific situation appears, there are clear forms there for owners and investors who want to take the next step more quietly.