How the Smart Money Structures Deals: A Breakdown by Buyer Type

From Owner-Operators to PE Firms, Here’s How Each Group Gets Deals Done (and What You Can Learn from Them)

When most business owners or advisors think about M&A, they focus on valuation—multiples, comps, and EBITDA. But ask any experienced dealmaker and they’ll tell you: how a deal is structured matters just as much as the number on the LOI.

In the lower middle market (LMM), deal structure determines risk-sharing, tax implications, closing certainty, and long-term alignment. And whether the buyer is a hands-on operator, a patient family office, or a private equity fund with LP targets to hit, their capital stack tells you a lot about how the deal is likely to unfold.

Let’s break down the structuring strategies of the three most common types of buyers—and what it means for sellers, brokers, and fellow investors.

LMM Operators: Scrappy, Resourceful, Debt-Heavy

Who they are:
Independent buyers, holdcos, and search funders—often first-time acquirers or serial entrepreneurs buying $1M–$10M businesses.

How they structure deals:

• SBA Loans (7a/504): The most common financing source in this tier. With up to 90% leverage and a government guarantee, it enables smaller buyers to punch above their weight—but comes with red tape and lender timelines.
• Seller Notes: Often 10–30% of the deal, these fill the gap when SBA limits are reached or when valuation is aggressive. They're usually subordinated and low-interest.
• Earnouts: Especially in businesses with uneven historical performance or revenue concentration, earnouts let buyers defer part of the price until certain targets are hit.
• Personal Cash or Retained Earnings: Most buyers still need to contribute 5–20% of the total deal value, whether from savings, HELOCs, or other sources.

Typical Terms:

• SBA 7(a) Loan: Up to 90% LTV; 10-year amortization; ~11–12% total rate; personal guarantee required
• Seller Note: 10–30% of deal value; 5–7% interest; 3–5 year term; subordinated
• Earnout: 10–20% of total price; 1–3 year term; revenue or SDE-based
• Cash Equity: 5–20% equity contribution (personal funds)

Why it matters:
Operators are typically risk-conscious but under-capitalized, so every dollar in the stack has a job. Expect a heavy reliance on debt, tighter cash flow models post-close, and a strong incentive to preserve working capital.

Family Offices: Patient, Flexible, Selective

Who they are:
Private capital groups investing the wealth of a family—often with generational goals, long hold periods, and broad investment mandates.

How they structure deals:

• All-Cash or Majority Equity: Many family offices can (and often prefer to) avoid leverage, which makes them attractive to sellers looking for fast, clean closes.
• Conventional Senior Debt: When used, it's usually from relationship-driven banks and offers conservative leverage.
• Private Credit or SBICs: These tools provide non-bank flexibility with fewer covenants and a willingness to think creatively about EBITDA adjustments or asset value.
• Rollover Equity: A favorite move—especially when the seller is still actively involved. Family offices are known for valuing alignment and shared upside.
• Seller Notes and Earnouts: Used as needed, often to reduce risk or build trust with the seller.

Typical Terms:

• All-Cash Offers: No contingencies; 30–60 day close; minimal financing complexity
• Senior Bank Debt: 2.5–3.5x EBITDA leverage; 6–8% interest; 5–7 year amortization
• Private Credit / SBICs: 12–14% target returns; 3–5 year term; may include warrants
• Seller Note: 10–25% of price; 6–8% interest; flexible repayment
• Rollover Equity: 10–40% retained equity; same class; no liquidity pressure

Why it matters:
Family offices bring deal flexibility and relationship orientation. They may pay slightly less than a PE firm, but sellers often value their long-term mindset and willingness to preserve company legacy.

Private Equity Firms: Structured, Strategic, and Return-Driven

Who they are:
Fund managers deploying committed capital from limited partners (LPs) with defined return targets and investment mandates.

How they structure deals:

• Senior Cash Flow Loans: Banks or private lenders provide 2.5x–4.5x EBITDA in non-asset-backed debt, based on historical cash flow and normalized EBITDA.
• Unitranche Financing: A hybrid senior-sub debt instrument provided by private credit funds. Simplifies the stack and speeds up closing.
• Mezzanine Debt / Subordinated Notes: Used to limit equity exposure and enhance returns, often with PIK interest or warrants.
• Equity (from LPs): Usually 20–50% of the deal value, but PE firms are incentivized to keep this low.
• Seller Rollover Equity: Very common—PE firms want the former owner aligned and incentivized to help grow the business.
• Earnouts: Often used to address uncertain growth or customer concentration, especially when the PE team is skeptical of projections.

Typical Terms:

• Senior Debt: 3.0–4.5x EBITDA leverage; 8–11% interest; 5–7 year term
• Unitranche: 6–10% interest; 5–6 year term; single facility up to 5x leverage
• Mezzanine/Sub Debt: 12–18% total return; 5-year term; often includes equity kicker
• Equity Contribution: 20–50% of capital stack; structured to meet 20–30% IRR targets
• Rollover Equity: 10–30% seller stake; may be subject to drag/tag rights
• Earnouts: 10–25% of price; 1–3 year performance-based; capped or tiered

Why it matters:
Private equity brings sophistication, scale, and structure. Deals are methodical, diligenced, and optimized for returns. But they’re also demanding—on both sellers and the company post-close.

What This Means for Sellers (and Advisors)

Understanding how a buyer structures a deal can tell you:

• How fast the deal might close
• How much cash you’ll actually get at closing
• What kind of partner you’re getting post-close
• What financial reporting and compliance expectations will look like

For advisors, knowing the buyer’s likely capital stack helps shape negotiations. You can push for stronger terms when a buyer is highly leveraged or accept a slightly lower offer with greater certainty and cash at close.

What This Means for Buyers (and Advisors)

In our world—advising everyone from LMM operators to family offices and PE funds—understanding the tools available to your buyer isn’t just helpful. It’s a strategic advantage.

Deal structure is where execution risk lives or dies. Whether we’re helping a family office craft a founder-friendly offer or supporting a PE fund in modeling out a complex capital stack, we’ve seen time and again that the most effective buyers don’t just compete on price—they use structure as a weapon.

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How High Point Advisory Group Can Help

At High Point Advisory Group, we work with buyers and sellers across the lower middle market to navigate the complexity of deal structuring with clarity, precision, and confidence. Whether you're an operator evaluating your first acquisition, a family office building a direct investing platform, or a PE fund pursuing platform and add-on deals, our team helps ensure your structure fits your strategy.

Here’s how we support clients:

For Buyers:

• Capital Stack Modeling
• Structure Advisory
• Diligence Support
• Post-Close Setup

For Sellers:

• Pre-Sale Cleanup & Prep
• Buyer Offer Review
• Negotiation Guidance

For Advisors:

• Deal Structuring Benchmarks
• Cross-Functional Coordination

Whether you need front-end modeling, back-end execution, or full-cycle support, High Point brings the financial horsepower and market savvy to help you get the deal done—right.

Takeaway: The Price Tag Is Just the Beginning

If you're selling your business—or helping someone buy one—don’t stop at the valuation. Ask:
How is the deal structured? Who’s taking the risk? What needs to go right for the seller to actually receive the full purchase price?

Whether you’re an entrepreneur making your first acquisition or a seller fielding offers from multiple buyer types, understanding the mechanics of deal structure gives you a strategic edge.

Want help modeling your capital stack or navigating buyer offers?

At High Point Advisory Group, we support buyers and sellers with clear-eyed financial models, strategic guidance, and execution support that de-risks every step of the deal. Reach out at info@highpointadvisorygroup.com.

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