Earn-Out

A portion of the purchase price in an acquisition that is payable at a future date, either as a fixed amount or contingent on the achievement of specified milestones. Deferred consideration must be recognised at fair value at the acquisition date under IFRS 3 and ASC 805, with subsequent changes in value typically recorded through profit or loss.

A vendor loan note (also called vendor finance or a deferred loan note) is an arrangement in which the seller of a business lends part of the purchase price back to the buyer, to be repaid over time with interest. Instead of receiving the whole price in cash at completion, the seller takes a loan note for a portion of it, which the buyer pays down from the acquired business's cash flow.

The sale and purchase agreement (SPA) is the definitive contract that transfers ownership of a business from seller to buyer. It sets out the price and how it is paid, the completion mechanism, and the warranties and indemnities the seller gives about the state of the business.

Reverse due diligence is diligence a seller, or the management team of a target, carries out on the buyer. In any deal where the seller retains an ongoing interest — an earn-out, a rollover of equity into the enlarged group, or a management team joining a private-equity platform — the buyer's quality matters as much to the seller as the reverse.

Acquisition finance is the funding an acquirer uses to buy a business. It usually combines several layers into a capital stack: the buyer's own cash or equity; senior bank debt, often secured on the target's assets and cash flows; asset-based lending against receivables, stock or plant; and increasingly IP-backed lending against intangible assets such as patents, software and brands.

Warranties and indemnities are the contractual protections a buyer receives from a seller in a business sale. Warranties are statements of fact about the business — that the accounts are accurate, that it owns its assets, that there are no undisclosed disputes — and if a warranty proves untrue the buyer may claim damages for the resulting loss.

A disclosure letter is the document a seller delivers alongside the sale and purchase agreement to qualify the warranties they are giving. Warranties are statements that the business is in a particular condition; the disclosure letter sets out the exceptions — the facts that make a warranty untrue or partly untrue — so that the buyer takes the business knowing about them and cannot later claim for what was disclosed.

A management presentation is the session, and accompanying deck, in which the leadership of a business being sold presents it to a serious buyer during due diligence. It goes beyond the information memorandum: management talk through the strategy, the numbers, the customer base, the team and the growth plan, and answer the buyer's questions directly.

Earn-Outs, Warranties and Life After the Sale

How to approach an earn-out as a seller.

Contingent Liability

A potential obligation arising from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the entity's control, or a present obligation where payment is not probable or the amount cannot be reliably measured.

What is a management buyout (MBO) and how are valuations determined?

An MBO is an acquisition where the company's management team becomes majority owners, typically with financial sponsor backing. Valuations are negotiated between management and seller/sponsor.

What are heads of terms?

Heads of terms is the short document recording the main commercial terms a buyer and seller have agreed in principle — price, structure, earn-out, conditions and exclusivity — before formal contracts are drafted. It is mostly non-binding.

How do I finance a business acquisition?

Combine sources into a capital stack: your equity, senior bank debt, asset-based lending, IP-backed lending against intangible assets, and vendor finance such as loan notes or an earn-out.