The gap is normal, and it is usually filled by the seller
Senior debt sized at about 3x EBITDA rarely covers a purchase price, and few buyers fund the difference in cash. The distance between the two is closed by the seller, in one of two forms, and negotiating it is where a stalled transaction most often finds its remaining room.
| Seller note | Rollover equity | |
|---|---|---|
| What it is | Part of the price paid over time rather than at closing | Equity the seller keeps in the business after the sale |
| Effect on closing cash | Reduces it | Reduces it |
| Seller's position | A creditor behind the lenders | An owner alongside the buyer |
| Why a seller agrees | A higher total price, and interest | Upside on the part they retained |
Why a seller says yes
Both instruments buy something the seller wants. A note usually supports a higher headline price than an all-cash offer, and it earns interest. Rollover keeps the seller exposed to a business they believe in, which matters most where they are also staying involved through a handover. Both also signal confidence to the lender: a seller willing to be paid later is a seller who expects the business to perform.
What it does to the stack
Seller paper sits behind the lenders and ahead of the equity. It reduces the cash a buyer needs at closing without adding a current-pay senior obligation, which is why it tends to help rather than hurt coverage. On the client transaction documented on the Raises.com podcast, a Texas HVAC services platform was financed with an institutional senior credit facility, junior debt, a seller note and seller rollover equity together.
Where the negotiation actually happens
Seller notes and rollover are described on the capital markets episode as the place where several million dollars of a structure can be found that did not appear to exist at the start of a conversation. It is a negotiation about timing and risk, not about the price of the business, and buyers who treat it that way get further than buyers who open with the price.
Structure and figures from the Raises.com capital markets episode at raises.com/podcast/tre-brown-capital-markets, and the client transaction at raises.com/podcast/cody-sechelski-texas-hvac-rollup. Terms depend on the business, the seller and the lender.
Next: where seller paper sits in the full stack and the terms defined plainly. Raises.com structures and papers these at raises.com/buy-a-business.