When Buyer and Seller Disagree on Price: 5 Ways to Structure the Deal Anyway

The seller had a number in his head. It was roughly sixty percent higher than mine. We had spent four months in diligence, we liked the business, and we were about to lose it over a multiple — not over the assets, the team, the customers or the strategy. Over a multiple.

That conversation happens in every deal room in the world, and most of the time it ends the same way: both sides walk, and a good business stays unsold.

It should not. **A price gap is almost never a disagreement about value — it is a disagreement about the future, and the future is something you can put terms around.** The seller believes next year will be his best ever. You believe the last three years were his best ever. Neither of you can prove it today. That is not a negotiating impasse; that is a structuring problem, and structuring problems have instruments.

## Why the Gap Exists in the First Place

Sellers price on potential. Buyers price on evidence. Both are being rational.

The seller has watched the pipeline fill, he knows which contract is about to be signed, and he has priced the business as if that already happened. You have a data room, an adjusted EBITDA figure you spent six weeks arguing about, and no way to verify the pipeline claim except by owning the business for a year.

So the number in dispute is not really "what is this worth." It is "who carries the risk that the optimistic case does not happen." Once you frame it that way, the negotiation stops being a contest of nerve and becomes a design exercise.

## Way 1: The Earn-Out — Pay for the Future Only When It Arrives

The earn-out is the most common bridge and the most misused. Part of the price is deferred and paid only if the business hits agreed performance targets after closing.

It is genuinely mainstream. Roughly one third of 2024 private-target M&A deals included an earn-out provision, and in 2024 the median earn-out equaled 31% of closing payments, with a median duration of 24 months, according to the [SRS Acquiom 2025 Deal Terms Study](https://www.srsacquiom.com/our-insights/ma-deals/). Between 50% and 80% of earn-outs use revenue or EBITDA as the trigger metric.

The appeal is obvious on both sides. The seller gets a path to his number if he was right. You avoid paying for a future that never shows up.

**The danger is equally obvious once you have lived through one: an earn-out often converts today's disagreement over price into tomorrow's litigation over the outcome.** That framing comes from a [Harvard Law School Forum on Corporate Governance analysis of earn-outs](https://corpgov.law.harvard.edu/2025/07/11/the-art-and-science-of-earn-outs-in-ma/), and it is exactly right. Kroll's practitioners add a useful rule of thumb: the larger the earn-out relative to the upfront payment, and the longer its duration, the more likely a dispute becomes ([Kroll](https://www.kroll.com/en/publications/expert-services/earn-outs-m-and-a-key-deal-tool-source-post-closing-disputes)).

Design accordingly. Short beats long. Simple beats precise. And revenue beats EBITDA if you want to sleep — revenue is the easiest metric to calculate and the hardest for a buyer to manipulate after closing, whereas EBITDA methodology is the single most litigated element in earn-out practice.

## Way 2: The Seller Note — Let the Seller Be the Bank

In a seller note, the seller finances part of his own sale price. You pay a portion at closing and the balance over three to five years, with interest, secured or subordinated depending on your lender.

Three things happen at once, and all three are good for the buyer.

- **Your cash outlay at closing falls**, which protects the balance sheet for the integration work that actually creates the value.

- **The seller's confidence gets tested in public.** A seller who genuinely believes his forecast will accept paper against it. A seller who refuses all deferred consideration is telling you something about his own forecast that no data room will.

- **The seller stays motivated to help you succeed**, because his remaining payments depend on the business surviving your ownership.

The cost is real: you now carry a fixed obligation to a person who used to run the company, and if the business underperforms, that obligation does not care. Model the note at your worst realistic year, not your base case.

## Way 3: Rolled Equity — Keep the Seller in the Boat

Instead of cashing out entirely, the seller reinvests part of his proceeds for a minority stake in the business going forward. He takes 70% off the table and rolls 30% into the new structure.

This is the most elegant answer to the potential-versus-evidence argument, because it does not resolve the argument at all — it simply lets time settle it, with both parties on the same side of the table. If the seller was right about the pipeline, his rolled stake is worth more than the cash he gave up. If he was wrong, he shares the consequence.

Rolled equity is particularly powerful when the seller is the business — the founder whose relationships, technical judgment or reputation are the real assets. **You cannot buy that with cash; you can only rent it with alignment.**


## Way 4: Escrow and Holdback — Price the Risk, Not the Optimism

Earn-outs handle upside disagreement. Escrows handle downside fear.

If the gap is being driven by a specific identified risk — a customer concentration, an unresolved tax position, a lawsuit, a licence renewal — do not discount the whole price to cover it. Carve out that exact risk into an escrow held for a defined period and released when the risk expires.

This does two things a blanket discount never does. It keeps the headline price near the seller's number, which matters more to sellers than most buyers realize. And it forces both sides to name the risk precisely instead of arguing about it as a vague deduction.

## Way 5: The Option, Not the Obligation

The most underused structure is the staged one. Buy a minority stake now with a contractual right — not a duty — to acquire the remainder at a formula-based price in two or three years.

You get a seat, real information, and a live view of whether the seller's forecast was honest. The seller gets liquidity, a partner, and a mechanism that rewards him if he was right. If it turns out you do not want the rest, you do not buy it.

Staged deals demand serious drafting around minority protections and the valuation formula, and they are slower. They are also the only structure that lets you buy information before you buy the company.

## The Four Clauses That Decide Whether Any of This Works

Structure is not where deals fail. Drafting is.

- **Define the metric with obsessive precision.** Forty-one percent of earn-out disputes turn on EBITDA calculation methodology. Specify the accounting policies, the permitted add-backs, the allocation of shared costs, and what happens if you change the chart of accounts.

- **Write the operating covenants.** Say explicitly what the buyer may and may not do during the earn-out period — restructure, reallocate cost, redirect sales into an affiliate. Buyers owe sellers a duty of good faith during the period, and vague drafting invites a claim that you deliberately suppressed the target.

- **Name the referee in advance.** For pure calculation disputes, an independent accounting expert typically resolves within 60 to 120 days. Full arbitration commonly runs 12 to 24 months and court litigation two to four years. Put expert determination in the contract before you need it.

- **Give the seller information rights.** A seller who receives clean monthly reporting rarely sues. A seller who is told nothing for eighteen months and then receives a "target missed" letter almost always does.

## Frequently Asked Questions

### What is an earn-out in an acquisition?

An earn-out is a contractual arrangement where part of the purchase price is deferred and paid only if the acquired business meets defined performance targets after closing. Targets are usually financial — revenue, EBITDA, EBIT or net income — measured over a set period. It lets a buyer avoid overpaying for an unproven future while giving the seller a route to a higher total price.

### What percentage of the purchase price is typically an earn-out?

In 2024 the median earn-out was 31% of closing payments, per the SRS Acquiom 2025 Deal Terms Study. Anything materially above that ratio raises dispute risk sharply, because the seller has too much of his outcome sitting inside a mechanism the buyer controls day to day.

### How long does an earn-out usually last?

The median is 24 months, and most run between one and three years. Longer periods are more likely to end in dispute, because the acquired business becomes progressively harder to measure as a standalone unit once integration begins.

### Should an earn-out be based on revenue or EBITDA?

Revenue is simpler to calculate and much harder for a buyer to influence after closing, which is why sellers usually prefer it. EBITDA better reflects real profitability, which is why buyers prefer it — but EBITDA methodology is the most litigated element in earn-out practice. If you choose EBITDA, define every add-back and cost allocation in the agreement itself.

### What is seller financing in a business acquisition?

Seller financing, or a seller note, is when the seller accepts payment of part of the price over time rather than at closing, usually with interest over three to five years. It lowers the buyer's cash requirement and signals the seller's own confidence, since a seller unwilling to hold any paper is implicitly doubting his own forecast.

### Why do earn-out disputes happen so often?

Most begin with definitional ambiguity — the agreement never specified precisely how the metric would be calculated, so both sides read the same financials differently. The rest come from buyer conduct: restructuring, reallocating costs, or diverting revenue in ways that suppress the target and trigger good-faith claims even when the target was technically missed.

## Key Takeaways

- **A price gap is a disagreement about the future, not about value.** Structure is how you allocate that uncertainty instead of arguing about it.

- **Earn-outs are mainstream but risky.** Median 31% of closing payments over 24 months; the bigger and longer they get, the more likely they end in dispute.

- **Revenue beats EBITDA as a trigger** unless you are willing to define every add-back and cost allocation in the contract.

- **A seller note tests the seller's own belief.** Refusal to hold any paper is information about the forecast, not about the price.

- **Rolled equity aligns rather than resolves.** When the seller is the asset, alignment buys what cash cannot.

- **Escrow the named risk instead of discounting the whole price.** Sellers concede far more when the headline number survives.

- **Deals fail in the drafting, not the structure.** Define the metric, write operating covenants, name an expert referee, and give the seller monthly reporting.

## Where to Take This Next

Take the deal currently stuck on your desk and write down the single sentence that describes what you and the seller actually disagree about. Not the multiple — the assumption underneath it. Then pick the instrument that puts that specific assumption to the test, and spend your remaining negotiating energy on the clause, not the number.

To see how a group founded in 1890 approaches ownership across eight industries and 75+ countries, explore [the Manzanos Enterprises group](/en/company). Then read the two pieces closest to this one: [the three methods for valuing a business before you buy it](/en/news/how-to-value-a-business-before-you-buy-it-3-valuation-methods), and [what buyers consistently miss in due diligence before they sign](/en/news/due-diligence-discipline-what-buyers-miss-before-they-sign).

*Meta description: Buyer and seller stuck on price? Earn-outs, seller notes, rolled equity, escrows and staged deals close the gap — plus the four clauses that decide if they work.*