How to Structure a Business Acquisition

What "structuring a deal" actually covers

A price is a single number both sides can agree to in an afternoon. A structure is the set of decisions that turn that number into something that can actually complete: how it is paid, what legal mechanism transfers the business, how the buyer funds it, and who carries which risk if the numbers turn out to be wrong. Two deals can share an identical headline price and be completely different transactions once the structure is set — one all cash at completion with the seller walking away clean, the other half cash and half contingent on hitting targets over the next two years, with the seller's exit tied to performance they no longer fully control.

The consideration: how the price is actually paid

The "price" of an acquisition is really the sum of several possible lines, and most real deals use more than one.

• Cash at completion. The simplest line and the one every other structure is compared against — paid on day one, no further conditions.
• Deferred consideration. A fixed amount paid on a fixed later date, with no performance condition attached. It spreads the buyer's cash outlay over time; it is not contingent on anything.
• An earn-out. Paid only if the business hits agreed targets after completion — contingent, and the most disputed line in many deals because the seller's payment depends on decisions the buyer now controls. What is an earn-out covers the mechanics in full.
• A vendor (seller) note. The seller effectively lends part of the price back to the buyer, usually subordinated to any senior debt, and is repaid over an agreed term with interest.
• An equity rollover. The seller takes part of the consideration as shares in the buying entity rather than cash, keeping a stake in the combined business rather than exiting completely.

It is easy to assume these exist mainly to bridge a valuation disagreement — the buyer will not pay for growth that has not happened yet, so part of the price becomes conditional on it happening. That is real, but it is only half the reason. Every line that is not cash at completion also reduces how much cash the buyer needs to raise on day one, which matters just as much to a buyer funding the deal from a finite mix of debt and equity as the valuation gap does. A structure with 60% cash, 20% deferred over two years and 20% earn-out only needs completion-day cash for the 60% line, well short of a full all-cash offer at the same headline price — which is frequently why a buyer proposes deferred and contingent elements even when they are not particularly worried about the seller's growth forecast.

The legal form: asset purchase or share purchase

Separately from how the price is paid, the deal needs a legal mechanism for the business to actually change hands. A share purchase buys the company itself — every asset, contract and liability it carries, known or not. An asset purchase buys named assets and liabilities out of the company, leaving the rest behind. The choice changes what due diligence has to prove, whether contracts need third-party consent to assign, and — in the UK — whether TUPE applies to the employees involved. Asset purchase vs share purchase covers this decision on its own; it interacts with the consideration and funding decisions here rather than sitting apart from them, which is why it belongs in the same structuring conversation even though the mechanics are different.

Funding: solving from the price backwards

A common mistake is treating funding as a percentage stack decided in isolation — "60% senior debt, 40% equity" — and only checking afterwards whether that stack is actually raisable. The more reliable order is to solve backwards from the price: what does the transaction actually cost, what can be secured against the target's own assets, and what has to be found from equity or a vendor contribution to close the gap.

Two cash items are easy to leave out of a first-pass structure and expensive to discover late. Transaction costs — legal, advisory and lender fees — are funded by equity in a properly modelled structure, because a lender advances against the business being bought, not against the cost of buying it; ignoring this overstates the buyer's return by the return on whatever fraction of the cheque the fees actually are. And working capital is not free cash sitting in the target's bank account waiting to be swept out at completion — a normal level of it is already assumed in an EV/EBITDA multiple, and the year-on-year movement in it absorbs real cash that debt-service cover has to account for, particularly in a growing business.

Risk allocation: who carries what, and when

The consideration decides how much is paid and when; risk allocation decides what happens if something turns out to be wrong. A buyer typically wants warranties (promises about the state of the business, backed by a right to claim if they are untrue), an indemnity for specific known risks, and a retention or escrow — part of the price held back for a period rather than paid in full at completion — to have something to claim against without suing a seller who has since spent the money. Completion mechanics matter too: a locked-box structure prices the business as at a date before completion and adjusts for value leakage in between, while a completion-accounts structure draws up the target's accounts as at completion itself and adjusts the price to match, often including a working-capital peg with a true-up once the real number is known. None of this is a fixed template — how much retention, how long a warranty period, which mechanism — is negotiated as part of the same conversation as the consideration, and a buyer accepting more inherited risk in a share deal will typically want a larger retention or a lower cash price to compensate for it.

A worked example

Common mistakes

• Agreeing a percentage funding stack before checking it is raisable. A senior-debt line that looks fine as "55% of the price" can be well past what the target's own cash flow or assets actually support; solve from the price and the security available, not from a round percentage.
• Forgetting fees and working capital are cash, not rounding. On a typical mid-market structure, ignoring transaction costs and the working-capital movement can overstate the equity return by a meaningful margin — they are real draws on the same cash the deal is funded with.
• Treating deferred and contingent consideration as purely about the price gap. They also reduce completion-day cash need, which matters to the funding conversation independently of whether either side actually disagrees about the business's prospects.
• Deciding legal form after the consideration is agreed, rather than alongside it. Whether a deal is an asset or share purchase changes what due diligence has to prove and what needs third-party consent — discovering that late, after the price and payment schedule are fixed, forces a renegotiation.
• Not revisiting the structure when the price moves. A structure solved for one price does not automatically still fund a different one; a late price change needs the funding and consideration re-solved, not just the total adjusted.

How TrueValue models a structure

The deal economics engine takes the consideration as it is actually agreed — cash at completion, a dated deferred schedule, an earn-out with its metric, threshold, cap and an attainment assumption, a subordinated vendor note, an equity rollover — and runs the funding, covenants and returns on the resulting price, rather than a simplified cash-only stand-in. The funding side solves from the price backwards: secured draws are capped at what the target's own filed accounts actually support, transaction costs are funded by equity rather than debt so they show up in the return they actually cost, and working capital is modelled as a real cash movement rather than assumed away. A stack with none of this — no consideration structure, no secured facilities, no fees modelled — produces exactly the figures a simple cash-price model would, so a straightforward all-cash deal is not made to look more complicated than it is. The resulting structure then carries into the offer document and the IC memo, so the payment terms a committee sees match the numbers the return was actually modelled on.