Deciphering Deal Structures: Insights into M&A Consideration Mix

For sellers, the "consideration mix" or deal structure should be as or *more important* than the top line purchase price. After all, we all know that earnouts, rollover equity, and seller notes don't always translate into money in the bank as initially anticipated.

Yesterday, Bill McCalpin of Capitalize Network, LLC gave a fantastic presentation analyzing the Alliance of M&A Advisors 1Q2024 M&A market survey.

Some key takeaways on consideration structure in deals from $4M - $250M that closed in 2H2023:

-Roughly 80% of closing consideration tended to be cash, irrespective of deal size.

-Roughly 25% of deals had a seller note, averaging under 10% of total consideration, with smaller deals having notes representing a greater percentage of the purchase price.

-Roughly 33% of deals included some equity consideration, with the prevalence of equity somewhat unsurprisingly increasing with deal size.

-Roughly 60% of transactions had an escrow feature, with a little over 5% of transaction value being the average and varying inversely with deal size.

-Roughly 34% of deals had an earnout, with at-risk amounts varying significantly transaction by transaction.

BOTTOM LINE: It's important for sellers to know what's typical in a transaction in order to assess offers. That's even more important in one-on-one negotiated acquisitions: Without running a full process, sellers can't compare offers against each other to ascertain what's market. Information is power