Empowering M&A Success Through Creative Financing Strategies

In the dynamic world of mergers and acquisitions (M&A), structuring deals that work for sellers and buyers is crucial for success. 

Seller financing is a transformative tool for businesses with valuations between $3 million and $60 million. It enables deals to close while fostering trust, legacy preservation, and financial flexibility.

At Amicus Infinitum, we specialize in aligning buyers and sellers through innovative deal structures that maximize value and preserve relationships while facilitating the fulfillment of both parties' intentions.  Seller financing, when well structured, embodies this approach, offering advantages for both sides.

What is Seller Financing?

Seller financing allows the seller to finance a portion—or even the majority—of the purchase price. Buyers typically make a 40–50% down payment, with the remaining balance financed through a promissory note. In some cases, seller financing can cover up to 90% of the purchase price, depending on the agreement, the buyer’s financial stability, and the seller’s long-term goals.

This approach allows buyers to secure funding while offering sellers ongoing income and tax benefits.

Valuation differences can stall negotiations. Seller financing resolves these challenges, allowing sellers to achieve their desired valuation while accommodating buyers’ financial constraints.

• Example: A business valued at $10 million could involve:
  • A 40% down payment ($4 million).
  • A $6 million seller-financed note payable over five years at a 6% interest rate.
• 90% Financing Option: In cases where buyers offer limited upfront cash, a seller might finance 90% of the deal ($9 million) while requiring only $1 million upfront.

Impact on Valuation: Seller financing often allows sellers to justify higher valuations by showing confidence in the business’s continued success.

Seller financing enables sellers to defer tax liabilities through installment sales tax treatment, spreading income over several years instead of recognizing it all in one tax year.

• Example (40% Down Payment): A seller receiving $4 million upfront and $6 million over five years remains in a lower tax bracket, reducing the overall tax burden.
• Example (90% Financing): By financing $9 million over seven years, the seller can extend tax payments further while earning interest, significantly increasing the net proceeds.

Amicus Insight: Sellers reduce tax obligations and enjoy predictable income during repayment.

High levels of seller financing (e.g., 90%) keep sellers involved, fostering a collaborative relationship with the buyer.  This ensures business operations continuity and provides reassurance to employees, clients, and vendors.

• Example: A seller who finances 90% of a $10 million transaction might stay on as a consultant, advisor, or board member, earning additional income while supporting the buyer’s success.
• Amicus Perspective: This partnership strengthens trust and ensures a smoother transition, preserving the seller’s legacy and assuring growth.

Seller financing provides sellers with ongoing income through interest, increasing the total payout.

• Example (50% Financing): On a $5 million seller note at 7% interest over five years, the seller earns $875,000 in interest for a total payout of $5.875 million.
• Example (90% Financing): On a $9 million seller note at 7% interest over seven years, the seller earns $2.52 million in interest for a total payout of $11.52 million.
• Amicus Recommendation: The payments enhance the seller’s financial security while aligning with the buyer’s cash flow.

1. Balanced Payment Terms:

• Down payments range from 10% to 50%, depending on the deal’s specifics.

2. Custom Repayment Schedules:

• Terms can range from five to ten years, offering flexibility based on the buyer’s financial capacity and the seller’s goals.

3. Interest Rates:

• Standard rates range from 5% to 8%, with agreements that reflect risk and industry standards.

4. Incentives for Business Performance:

• Sellers can tie part of the repayment to future business performance, ensuring alignment with growth goals.

Seller financing demonstrates the broker’s ability to craft creative solutions that align with both parties’ objectives. By offering this option, brokers:

• Close More Deals: Facilitate transactions that might otherwise stall due to valuation or funding gaps.
• Enhance Seller Outcomes: Showcase financing structures that maximize the seller’s financial returns.
• Preserve Legacies: Foster trust and continuity by keeping sellers connected to their businesses during transitions.

At Amicus Infinitum, we collaborate with brokers to structure these innovative solutions, ensuring every deal is a win for all parties involved.

Seller financing isn’t just a financial tool—it’s a strategy that builds trust, creates alignment, and drives mutual growth. Whether structuring a 50% down payment or financing 90% of a deal, our expertise ensures sellers and buyers achieve their goals.

Let’s discuss how seller financing can unlock opportunities and elevate your M&A transactions.