This Explainer is the framework layer of the deal negotiation, structuring, and closing cluster. Before drilling into specific forms of consideration or specific seller-financing instruments, the seller needs the mental model — the vocabulary, the hierarchy, and the combinatorics that govern how payment structures actually get built. This Explainer covers that framework.
The four building blocks.
Every agency M&A payment structure is built from some combination of four primitives:
- Cash at close. Wired the day of close. The only zero-risk component.
- Earn-out. Contingent post-close payment tied to performance metrics.
- Seller note. Seller-financed portion documented as promissory note debt.
- Rollover equity. Minority equity stake in the acquired platform retained by the seller.
The taxonomy matters because each primitive carries a distinct risk profile, a distinct tax treatment, and a distinct enforcement mechanism if the buyer doesn't perform. Mixing them into a single deal — the hybrid layer-cake — is the standard pattern in most acquisitions above the SBA-financed band.
Priority of payment when things go wrong.
Every acquisition assembles a capital stack — the layers of debt and equity used to fund the purchase price. The seller's consideration sits somewhere in that stack, and the position determines what happens when post-close performance disappoints:
| Layer | Typical position | Seller exposure |
|---|---|---|
| Senior debt | Top of stack; bank loan or SBA 7(a) | N/A — paid first; not where seller sits |
| Mezzanine debt | Second; PIK or subordinated bank | Compresses the gap; common in larger deals |
| Seller note | Third; subordinated to senior + mezz | Payment-blockage windows block payment if senior is in trouble |
| Rollover equity | Bottom; alongside buyer equity | First-loss position; recovers only on platform exit |
The implication for the seller: subordination is not a paperwork detail. A seller note that gets blocked from payment for an extended period because senior debt is under stress is functionally worth less than the same note that pays on schedule. The protective provisions — payment-blockage caps, standstill periods, cure rights, acceleration triggers — are what determine whether the note holds its face value.
How real deals actually combine.
Most agency M&A transactions above the SBA-financed band combine multiple consideration types in a hybrid layer-cake. The combinatorics aren't random — they follow patterns by buyer archetype and deal size:
Cash + earn-out + rollover.
- 60–75% cash at close.
- 10–20% earn-out tied to retention or growth.
- 15–30% rollover equity for the second bite.
- Seller note rare; senior bank financing fills the gap instead.
Cash + earn-out.
- 70–85% cash at close.
- 15–30% earn-out tied to synergy or transition metrics.
- Rollover rare unless acquirer has equity to offer.
- Lower headline ceiling, more cash-weighted structure.
Cash + seller note.
- 50–70% cash at close (SBA loan proceeds).
- 10–30% seller note (often standby for SBA compliance).
- 10–20% buyer equity injection.
- Earn-out structurally restricted by SBA rules.
How buyer capital shapes seller terms.
The buyer's capital structure decisions cascade directly into the seller's experience. The PE platform with fresh fund capital looks structurally different from the same PE firm at the back end of fund vintage. The strategic acquirer with a committed credit facility behaves differently from the strategic still negotiating bank financing. The individual buyer with SBA pre-qualification operates inside a documented constraint envelope.
Reading the acquirer's funding posture in the first few conversations changes the entire negotiation. The seller who recognizes "this buyer's senior debt is the binding constraint" tailors the negotiation differently from the seller who treats every buyer as having limitless capital.
The questions that surface acquirer funding signal:
- Where is the capital coming from? Specific fund, committed credit facility, SBA loan in pre-qualification.
- What's the senior-debt covenant package? If senior debt has aggressive financial covenants, the seller note's payment-blockage exposure rises.
- What's the equity injection? Lower equity injection = thinner cushion; seller paper gets riskier.
- What's the fund vintage / capital deployment timeline? Earlier-vintage funds deploy more aggressively; later-vintage funds may compress on terms.
The parent Explainer — Payment Structures & Capital Stack — frames the layer-cake framework. Forms of Consideration covers the specific payment forms in depth; Seller-Financing Instruments covers the legal documents that secure seller paper.