Sellers generally prefer all-cash transactions; however, partial seller financing is often necessary in typical middle market company transactions.  Additionally, sellers who demand all-cash deals typically receive a lower purchase price than they do when providing some financing. Although buyers may be able to pay all-cash at closing, they often want to structure a deal where the seller has left some portion of the price on the table, either in the form of a note or an earnout.  Buyers view deferring some of the purchase price as providing leverage in the event that the owner has misrepresented the business.  An earnout is a mechanism to provide payment based on future performance.  Acquirers think there should be no problem with this type of payout if the business is as it is represented but the seller, who knows the business is sound under his or her management, will be concerned with the risk that the buyer will not be as successful in operating the business. Moreover, the … [Read more...]