There’s an old line in deal-making: you name the price, I’ll name the terms, and I’ll win every time. It survives because it keeps being true, and nowhere more reliably than in small-company M&A, where sellers anchor on the headline multiple (the number they’ll repeat at the lake this summer) while buyers quietly do their winning in the structure underneath it. So here’s the discipline this post exists to install: never evaluate an offer by its top number. Evaluate it by how much money reaches you, when, and with what probability.
Two offers, worked side by side
Your MSP shows $700k of adjusted EBITDA. Two buyers come to the table.
Buyer A offers 6x: $4.2M. The structure: $2.3M cash at close, a $900k earnout over two years tied to EBITDA targets under their ownership, a $600k seller note paid over five years, and $400k of “rollover equity” in their platform.
Buyer B offers 4.6x: $3.2M. The structure: $3.0M cash at close and a $200k escrow released in 18 months, standard terms.
The lake conversation says Buyer A wins by a mile. Now run probabilities instead of headlines. The earnout is measured in a number the buyer’s own integration decisions control; industry experience says treat a structure like that as a coin flip at best, so weight it half or less: call it $450k. The seller note is unsecured, subordinated to the buyer’s bank, and pays only if the combined company prospers for five years; haircut it to 70% if you’re feeling generous: $420k. The rollover equity pays if and when their platform sells well, years from now, at a value nobody can verify today; serious sellers value paper like that at a deep discount, say half: $200k. Buyer A’s risk-adjusted total: roughly $3.37M, and the money arrives over five-plus years. Buyer B’s: about $3.18M, nearly all of it at closing, with the escrow the only contingency.
A $1M headline gap just became a rounding difference, before considering what the years of waiting, monitoring, and potentially disputing are worth to a person who sold in order to be done. Different assumptions move the answer either way, and that’s precisely the point: the comparison lives in the assumptions, and sellers who never make them explicit are comparing fictions.
The pecking order of a dollar
Every deal dollar belongs to one of a few species, and they are not equal. Ranked from best to worst for a seller:
Cash at close. Wired, final, yours. The only dollar with no asterisk, and the denominator every other dollar should be measured against.
Escrowed cash. Real money parked (typically 5-15% for 12-24 months) against indemnity claims. Usually pays out absent genuine problems; discount it lightly.
Seller notes. You’ve financed your own buyer, standing behind their bank in line. Quality ranges from solid (secured, sensible borrower, short term) to theoretical. Price it like the loan officer you’ve just become.
Earnouts. Contingent on future performance you influence at most partially. Discount steeply, and steeper the longer the period, the more complex the metric, and the more the buyer’s own choices move it.
Rollover equity. A minority stake in someone else’s company, illiquid until they decide otherwise. Real fortunes have been made here (the “second bite”), and real zeroes taken. Value it like the venture bet it is, not like savings.
None of the lower species are illegitimate, to be clear. Notes and earnouts bridge honest gaps, and rollover equity aligns interests when the platform story is real. The discipline is just refusing to count any of them at face value, because the buyer certainly doesn’t.
Why the high headline exists at all
Once you see the pecking order, a market pattern snaps into focus: headline multiples and cash percentages trade against each other. A buyer stretching on price protects themselves in structure; a buyer paying mostly cash prices more carefully because they’re keeping the risk. That’s rational on both sides, but it produces a systematic trap for headline-focused sellers: the most eye-catching offers are, by construction, the ones with the most contingent architecture underneath, and the auction won by the biggest number is often won by the deal most likely to disappoint. Ask why the buyer needs the structure, and the funding answer usually explains the term sheet: leverage capacity, fund mechanics, or thin conviction about the very earnings they’re headlining.
So run the comparison protocol on every offer: build a table with one row per dollar species, assign each row an honest probability and a date, and compare offers on risk-adjusted, time-weighted proceeds. Have your CPA overlay taxes (structures are taxed differently, and asset-versus-stock treatment moves nets further). Then, and only then, look at the multiples, mostly for amusement.
Two closing rules from the buyer’s side of the table. First: a seller who says “walk me through the structure before we discuss price” instantly changes how the room negotiates with them, because they’ve announced which games won’t work. Second: when two offers are genuinely close on risk-adjusted proceeds, take the one that lets you sleep, which usually means the one with more cash and fewer future conversations. The lake will be just as pleasant either way, and you’ll never have to explain a subordination clause there.