Deal structure · Topic guide
Deferred consideration
An agreed part of the purchase price scheduled for payment after completion.
Deferred consideration separates the transfer of ownership from the timing of payment. In its simple fixed form, the amount is already owed under the agreement and is paid on specified future dates. This differs from an earn-out, where the amount or entitlement depends on a performance condition. The distinction determines what happens if the company’s earnings weaken after the buyer takes control.
A reported acquisition in the collection costs £1.8m: £1m at completion, £400k at month 24 and £400k at month 36. That is a payment schedule, not evidence the buyer needs only £1m of total capital. The later £800k has to come from retained cash, new capital or another agreed source when due. Watch source Watch source
Place every deferred amount in the cash forecast beside bank repayment and operating needs. Back-loaded payments may preserve early liquidity but create a concentrated future funding requirement. One source explanation assumes refinancing after bank amortization; its numerical balloon illustration is internally inconsistent, so it should not be copied as a valid model. Model the actual contractual totals independently and stress a scenario where refinancing is unavailable. Also identify whether payment blocks or seller security change the expected schedule. Deferral can align a deal’s timing without making its ultimate price or obligations disappear. Watch source
Follow the connections
Seller financing · Earn-outs · Refinancing.
Continue in the course: Structuring the price.
See it in an example
- Reported completed
The reported £1.8m acquisition
Reconcile the reported payment schedule and see how rounded earnings change the purchase multiple.
Numbers in context
- Illustrative stack · £1m profit; £3.5m price; £2m bank; £1m deferred seller; £0.5m equityHypothetical
A purchase-price example combines bank funding, deferred seller payment and investor equity.
The illustrated stack does not describe a completed Stanley acquisition.
- Preferred upfront/deferred split · ~65% upfront; remainder equal annual payments over 5 yearsRule of thumb
The seller is asked to accept a meaningful payment at completion and a multiyear deferred balance.
The preferred split differs from the separate 75% upfront illustration.
- Illustrative transaction · £1m pretax earnings; 4x price=£4m; £3m upfront=75%; £1m laterHypothetical
A simple offer splits the headline price between completion cash and later consideration.
Fixed deferral and an earn-out have different payment conditions and are not interchangeable.
- January day-one consideration · >75% initially, then ~70–75%Personal experience
The January deal's consideration is described as mostly payable at completion.
The upfront percentage changes during the explanation and does not reveal the debt/equity mix.
- Seller balloon illustration · £2m over 4 years at £500k/year versus £333k x3 plus stated £3m year 4Hypothetical
A balloon-payment example aims to move more seller consideration to the final year.
The alternative payments total about £4m, conflicting with the starting £2m obligation.
Sources & further viewing 3 videos
The explanations on this site are independent synthesis. Follow each original for full context. A reported experience is not independent proof of a transaction.
- Educational Deferred consideration versus earnout
- Personal experience Exceptional £1.8m deal
- Educational Balloon payments manage liquidity but assume refinance