An unsolicited letter of intent arrives. The multiple looks strong, sometimes considerably stronger than the owner expected. There is a deadline, an exclusivity clause, and a buy-side advisor who has done this several hundred times against an owner who has done it never.
The headline number is the part of the document that receives the most attention and carries the least information. Almost everything that determines what you actually receive sits in the structure underneath it.
Read the consideration breakdown first
Before the multiple, find how the purchase price is composed. A strong headline can resolve into fifty percent cash at close, thirty percent rollover equity, and twenty percent earnout, and those three components are not remotely the same asset. Cash is certain. Rollover equity is a bet on the sponsor’s next exit, on terms you do not control. An earnout is a promise contingent on performance you will be delivering inside someone else’s operating model.
Ask what percentage of the headline is genuinely certain at close. If the answer is under sixty percent, the deal you are being offered is materially different from the deal you have been quoted.
Then read who controls the earnout metrics
An earnout tied to metrics the buyer controls is not consideration. It is an option the buyer holds and you have paid for.
Earnouts are frequently tied to EBITDA over two or three years post-close. After close, the buyer decides staffing levels, capital allocation, referral flow, overhead allocation, and how much corporate cost lands on your entity’s books. Each of those decisions can be entirely reasonable from their perspective and still move your earnout to zero.
Where earnouts are unavoidable, three things reduce the exposure: tie them to revenue or volume rather than to profit, shorten the period, and write explicit protections about how allocated overhead and management fees will be treated. A buyer negotiating in good faith will discuss all three. A buyer who refuses all three has told you something useful.
Fix your own numbers before you respond
The most common and most expensive mistake is to negotiate against a valuation built on financials that understate the business. Conservative coding, unbilled ancillary revenue, owner compensation running above market, personal expenses inside the entity, and add-backs that were never documented all suppress the EBITDA the multiple is applied to. At a seven-times multiple, four hundred thousand dollars of unrecognized earnings is nearly three million dollars of purchase price.
This work takes weeks, not days, which is precisely why exclusivity periods are short and deadlines feel urgent. The pressure is not incidental to the process. It is part of it.
The question worth asking early
Owners tend to ask whether the offer is good. The more useful question is what the offer implies about what the buyer sees. A sponsor pays a premium because they have identified value they believe they can unlock, whether that is pricing power, a roll-up thesis, or an inefficiency they know how to fix. Understanding what they are seeing tells you two things at once: what your business is genuinely worth, and whether you could capture some of that value yourself before selling any of it.