Earn-out, deferred payment, vendor loan: how deal structuring creates balance beyond the price tag

In today’s market  (with rising financing constraints, valuation uncertainty, and cautious buyer behaviour), sellers and buyers often need to find middle ground beyond a flat price. Structuring the payment over time has become more than a workaround : it’s a strategic tool.

The earn-out is perhaps the most well-known example. It links part of the purchase price to future performance (typically based on financial targets such as revenue or EBITDA), allowing both parties to bridge a valuation gap. The buyer reduces upfront risk; the seller benefits if the company delivers on its promises. It’s a classic alignment mechanism,  but also a potential source of tension if performance targets aren’t clearly defined.

The deferred payment is simpler. It’s not conditional on performance, just a postponed portion of the price, typically paid over 12 or 24 months. It helps ease pressure on the buyer’s cash flow, while still offering the seller a degree of certainty, assuming the buyer’s creditworthiness is solid.

Then comes the vendor loan, essentially, seller-provided financing. It allows the buyer to complete the deal without full external financing, and gives the seller an active role in the financing stack. But it also exposes them to credit risk, which is why strong contractual safeguards are essential: maturity, interest, guarantees, and repayment conditions must be clearly laid out.

These mechanisms aren’t interchangeable. Each responds to a different situation.

• The earn-out is ideal when a significant part of the company’s value lies in its future trajectory and when that future is still uncertain.
• The deferred payment is mostly a cash flow tool: it spreads payment over time, without changing the price logic.
• The vendor loan serves as a financing tool: it replaces or complements bank lending when liquidity is tight or conditions are restrictive.

In practice, these tools are often combined. A seller may agree to a payment structure with part paid at closing, part deferred, part subject to earn-out targets, and part financed through a vendor loan. The challenge is then to ensure that all components are consistent legally, financially, and operationally.

Take a simple example: a business is sold for €10 million. The buyer pays €6 million at closing, €2 million deferred over 12 months, and another €2 million linked to future EBITDA performance. To complete the financing, the seller provides a €1.5 million vendor loan over three years at a preferential interest rate. Such a structure can unlock the deal but only if each component is properly secured and clearly documented.

These tools can create value, but only if they’re designed with clarity and foresight. Most post-deal disputes don’t stem from bad faith, but from poorly drafted clauses or ambiguous definitions.

In earn-outs, precision is everything. What exactly is the target metric? Adjusted EBITDA? Net profit? How is it calculated, audited, and verified? What happens if the company’s scope or accounting policy changes? And what protections exist for the seller if performance is undermined post-deal?

Deferred payments also require safeguards: what happens if the buyer defaults? Are there guarantees, pledges, or specific contractual remedies?

Vendor loans, meanwhile, must be treated as proper debt instruments, with standard loan documentation: interest, maturity, repayment terms, covenants and a clear position within the financing hierarchy. Conflicts may arise if the company takes on senior debt later and the vendor loan becomes subordinated or restricted.

At the end of the day, these mechanisms reflect a broader trend: dealmaking is becoming more structured, more thoughtful, more risk-aware. The price is no longer just a headline figure, it’s a balance between present value, future potential, and mutual trust.

At deminor NXT, we support shareholders in designing transaction structures that stand the test of time. That means anticipating legal risks, ensuring fair alignment of interests, and creating financial terms that are sustainable, not just for the closing, but for what comes after.

Because building a solid deal isn’t just about agreeing on a price. It’s about designing a mechanism that makes that price meaningful.

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Do you have questions or need advice? Please do not hesitate to contact us.