What’s the real currency in M&A deals? 10 Ways Buyers Pay.

Melissa Fish
Sep 13
6 min read

September 13, 2025

10 Ways Buyers Pay for a Business: M&A Deal Structures Explained

By: Melissa Fish, Esq.

“Price is what you pay. Value is what you get.”

— Warren Buffet

The structure of a deal is often just as important as the purchase price itself…sometimes more so. Knowing your options can make the difference between a transaction that closes smoothly and one that falls apart. The right mix can bridge valuation gaps, manage risk, and keep both sides comfortable enough to say “yes.” In this article, I’ll walk you through ten of the most common deal structures in the small to middle market.

1. Cash at Closing.

Cash at closing is exactly what it sounds like: the buyer wires the full purchase price on the day the deal closes. Simple, clean, done. For sellers, this is still the dream scenario (who doesn’t love walking away with the check in hand?). But in today’s tighter credit environment, with banks poking around every corner and underwriting getting stricter, pure cash deals are becoming rarer. When they do happen, though, they’re still the gold standard. The catch? Make sure the buyer really has the money lined up. Always confirm proof of funds early, and if there are any purchase price adjustments, tie them to something clear and objective like a net working capital target, so you don’t end up haggling post-closing.

2. Stock Consideration.

Instead of paying all cash, sometimes the buyer hands over equity (stock or membership interests) in their own company. On the surface, it sounds pretty exciting: the seller gets to ride along for the buyer’s future growth. If the buyer is a public company or a roll-up, this can be especially attractive (who doesn’t love the idea of cashing out later at a higher valuation?). But here’s the fine print, make sure you actually know what you’re getting into. Dig into the buyer’s cap table and understand where you land in the liquidation stack. Are there transfer restrictions? Do you have any say in big decisions? And don’t forget about tax! Equity compensation can be treated very differently than cash, and not always in ways you’d hope. In other words: exciting upside, but look before you leap.

3. Seller Financing (aka “Seller Note”).

Seller financing (memorialized in a “seller note”) is when the seller essentially acts like the bank, lending a portion of the purchase price back to the buyer and getting paid over time. In today’s high interest, tight lending market, these notes are often what gets a deal across the finish line. But here’s the reality check: in the lower and middle market, seller notes are usually unsecured. That means if the buyer defaults, there’s no collateral waiting in the wings. Nervous sellers sometimes ask for security or even personal guarantees, but that can turn into a deal killer fast. A better approach? Consider a slightly higher interest rate, shorten the amortization schedule, or bake in meaningful default triggers like acceleration clauses. You can also require regular financial reporting so you’re not flying blind. The bottom line is, seller financing can be a great tool, but don’t assume it comes with a safety net.

4. Earn-Outs.

An earn-out is the classic “prove it” structure. Instead of handing over the full price at closing, the buyer agrees to pay a portion later, but only if the business hits certain performance targets like revenue, EBITDA, customer counts, or product approvals. Sellers love them when they’re convinced growth is right around the corner; buyers love them when they’re not so sure.

The details really matter here. Revenue targets are straightforward, but they can be inflated or distorted if the buyer starts discounting heavily or delaying returns. Net income goes a step further by factoring in expenses, but that opens the door for creative accounting; it’s easy to shift costs around and make profits look smaller (or bigger) than they really are. That’s why many deals land on EBITDA; it’s a compromise metric that factors in operational performance while stripping out non-operational noise like interest, taxes, and depreciation. Note, sometimes the targets aren’t even financial (I’ll save these details for another article).

While helpful, earn-outs can also come with governance headaches. You’ll likely need to spell out exactly how the business will be run post-closing, what accounting standards apply, and how disputes get resolved (because trust me, disputes can happen).

The upside? Earn-outs can keep deals alive when price expectations don’t match, spread the risk, and give buyers breathing room on cash. Earn-outs can be incredibly useful tools, but they only work well with clear drafting, disciplined accounting, and good guidance on both sides.

5. Assumption of Liabilities.

Assumption of liabilities is when the buyer agrees to take on certain debts or obligations as part of the purchase price. It’s rarely a straight-up replacement for cash; it’s more of a creative add-on that helps bridge the gap. For example, maybe the buyer takes over a lease, assumes a vendor contract, or even reimburses the seller over time for paying down a liability (I’m working on one now that’s structured like a reimbursement note: no interest, just steady paydown, which is actually a pretty elegant way to handle it). The upside is clear: it reduces the cash the buyer needs at closing and can smooth the transition of ongoing obligations. The downside? Hidden or contingent liabilities (tax, employment, warranty, or even data/privacy issues) can sneak up on a buyer. The key is to map everything out in a detailed assumption schedule and back it up with solid indemnities, so you’re not surprised by debts you didn’t bargain for!

6. Convertible Notes.

Convertible notes are an interesting tool in the M&A toolbox. Basically, debt can flip into equity later when certain triggers hit, like a financing round, a milestone, or performance goals. You don’t see them much in straightforward buyouts, but they can shine in hybrid deals (e.g. venture-style acquisitions) where nobody can quite agree on valuation upfront. It’s like saying, “Fine, let’s call it a loan for now, and if things go well, you’ll own a piece of the upside.” But the devil is in the details: you’ve got to nail down the conversion mechanics, set valuation caps and floors, and think carefully about anti-dilution protections. Used right, a convertible note gives everyone breathing room. Used wrong, it’s a recipe for messy cap tables and angry emails later.

7. Licensing.

Picture this: a small biotech founder has spent years developing a promising treatment, but the product isn’t through FDA approval yet. Big pharma comes knocking, they want in, but they don’t want to gamble hundreds of millions to buy the IP outright before it clears regulatory hurdles. The solution? A license deal. Instead of buying the IP, the pharma company pays ongoing royalties for the right to use it, and the founder keeps ownership. It’s like renting the golden goose instead of taking it home. But beware, licensing deals can get sticky fast. You’ll need to be crystal clear on who owns what, where the IP can be used, and who benefits from future improvements.

8. Deferred Payments.

Deferred payments are exactly what they sound like: the buyer pays part of the purchase price at closing and the rest in fixed installments over time. Think of it as the “payment plan” option in M&A. Unlike earn-outs, there are no performance hurdles; it’s just a schedule the buyer has to follow.

9. Holdbacks & Escrows.

A holdback is when the buyer sets aside part of the purchase price (often in escrow) for a set period to cover things like tax surprises, contract disputes, or other skeletons in the closet. It’s super common these days because buyers don’t want to pay in full and then get burned later. Sellers just need to watch the size and length of the holdback, how claims get made, and whether insurance (e.g. reps & warranties) can shrink the amount. Think of it as the buyer’s “just in case” fund.

10. Clawbacks.

Finally, clawbacks; these let the buyer take back part of the purchase price if certain conditions aren’t met (e.g. missed milestones or breached warranties). Think of it as a money-back guarantee, but in M&A form. They’re especially popular in shaky markets or when big approvals are still pending. The trick is to spell out exactly what triggers a clawback, how much can be reclaimed, and for how long.

Deal structures aren’t just legal fine print, they’re the mechanisms that shape whether a transaction succeeds or stalls. For sellers, they provide a way to look beyond the headline price and understand the real value of an offer. For buyers, they create flexibility to manage risk, align incentives, and keep deals moving forward. Cash may be the simplest form of consideration, but it’s far from the only one. With the right structure, parties can bridge valuation gaps, share risk, and ultimately close deals that might not otherwise happen.

Have questions about structuring your deal? Reach out to Fish Legal Counsel at (310) 400-0743 or legal@melissafish.com.

This article is for general educational purposes only and is not legal or tax advice. Every deal is different. Please consult your own counsel for guidance specific to your transaction.