The deal behind the headline number

At the start of a deal, there is usually a headline number and it is easy to focus on that figure. It is the number that gets shared between adviser and client, and is often used as the measure of whether a process has been a success. But for a founder going through a sale for the first time, that number can be misleading in ways that only become clear once the detail comes through.

The headline valuation is not always the same as the amount that lands in your bank on the day of completion. Most deals involve layers that sit between those two figures, and understanding them before a process begins makes a significant difference to how you navigate it.

The first layer: deal structure

The deal structure determines how and when consideration is paid. This is where the gap between the headline number and the real one can widen considerably.

Two offers with identical headline values can produce very different outcomes depending on how much is paid upfront, what conditions are attached, what future performance is required to unlock the rest, and whether there is any equity rollover for shareholders.

Earnouts

An earnout is a mechanism where part of the purchase price is paid after completion, based on the business achieving agreed performance targets. It is one of the most common ways of bridging a gap when buyer and seller have different views on sustainable earnings or future value, and buyers see it as a way of aligning both parties.

In effect, the seller is sharing some of the future risk and reward. If the business performs as expected, the additional consideration is paid. If it does not, that portion may reduce or disappear entirely.

What sellers need to focus on is control. Once a business is sold, the seller may no longer have full authority over the decisions that influence performance. A well-constructed earnout has clearly defined metrics, realistic targets that are not cliff-edge based, transparent reporting and agreed protections around how the business will be run during the earnout period.

The biggest problems arise when a structure sounds straightforward in principle but becomes ambiguous in practice. A good adviser to sellers will push back hard to make an earnout as achievable as possible.

Deferred consideration

Deferred consideration differs from an earnout in one important respect: it is usually a fixed sum agreed at the point of sale, paid at a later date rather than on completion. The amount is not contingent on performance. What varies is when it arrives.

But founders need to ask one question clearly: what confidence do I have that this money will actually be paid? Deferred consideration is effectively a debt owed to you by the buyer. If their position deteriorates after completion, that payment is not as secure as cash in your account on day one. The financial strength of the buyer, and the protections available to sellers, matter as much as the headline offer.

Equity rollover

An equity rollover is when the seller reinvests part of the value of their existing ownership into the acquiring company, instead of taking 100% of the purchase price in cash.

Buyers can like an equity rollover because it aligns both sides on growing the business and ultimately increasing exit returns. Sellers may prefer it where there is genuine belief in upside potential they can participate in. For an adviser to sellers, it is critical to negotiate the instrument being rolled into, any downside protections and rights to protect the rolled value.

The second layer: the balance sheet adjustment

Almost every deal involves a pound-for-pound balance sheet adjustment for cash, debt and working capital. These adjustments are market standard but heavily negotiated, and the technical arguments involved can lead to a significant loss of value if ignored. Many sellers are unaware of the ‘dark arts’ involved.

The principle is straightforward. A buyer expects to receive a clean balance sheet, free from debt accrued under the previous owner’s watch. If the business carries debt at the point of sale, that will be reflected in what the seller actually receives. Equally, if a business has generated significant cash and held it ahead of a sale, that cash belongs to the seller, not the buyer. Understanding them early means there are no surprises when the final number is reconciled. The working capital adjustment is a story for another day, given the complexities and technical points that can be argued either way.

The number that actually matters

The headline figure is where most conversations start, but the work of understanding a deal happens in everything that sits beneath it.

Cash, debt and working capital adjustments apply to every deal. Earnouts introduce performance risk and require careful drafting. Deferred consideration brings timing and credit risk into the picture. Equity rollovers enable shared participation in future upside.

None of these are reasons to walk away from a process. They are the mechanics of how deals are structured, and they reward the founders who understand them before they enter a room.

The question most founders ask is what their business is worth. The more important question is how and when the consideration is actually being paid, because more often than not, that is what determines the real outcome.

Key takeaways

• The headline valuation in a business sale is not the same as the amount that lands in your bank on completion – deal structure, balance sheet adjustments and deferred payments all affect the final outcome.
• An earnout ties part of the purchase price to post-completion performance, meaning the seller shares future risk – the key issue is control, since the seller may no longer have authority over the decisions that drive those results.
• Deferred consideration differs from an earnout in that it is a fixed sum agreed at the outset, but founders must assess what confidence they have that the buyer will actually pay when the time comes.
• An equity rollover – reinvesting part of the sale value into the acquiring business – aligns both sides on future growth but means the seller is not fully cashing out and retains exposure to the acquirer’s performance.
• Balance sheet adjustments for cash, debt and working capital apply to almost every deal and can significantly reduce the effective consideration received, making it essential to understand these mechanics before agreeing a headline number.

Sahil is a Shareholder and Director at Cavu CF and is responsible for leading a wide range of sellside and buyside M&A transactions. He has established himself as a leading dealmaker, proving an ability to deliver excellent value for clients. Sahil has over a decade worth of experience advising clients, and previously worked at a large regional practice, where he qualified as a chartered accountant and latterly worked in their corporate finance team. Sahil was awarded the Emerging Dealmaker award in 2024.

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