M&A Financing Trends: More Cash at Close, Fewer Earnouts

The structure of M&A deals is shifting in favor of sellers, with more cash at close and a declining reliance on earnouts. The Q4 2024 Market Pulse Survey, conducted by the International Business Brokers Association (IBBA) and M&A Source, highlights how deal financing is evolving, making it one of the most seller-friendly markets in years.



In this blog, we’ll explore the increase in upfront cash payments, the decline of seller financing and earnouts, and what these trends mean for business owners preparing to sell in 2025.

More Cash Upfront: A Major Shift in M&A Deal Structures

The Q4 2024 Market Pulse Survey shows a clear trend:

✅ Higher Cash Payments at Closing:

• Sellers are receiving larger upfront cash payouts, with fewer deferred payments.
• Compared to Q4 2023, the average cash at close percentage has increased by 10-15% across most deal sizes.

✅ Reduced Reliance on Seller Financing:

• Buyers have greater access to financing due to improved lending conditions, reducing the need for seller-backed financing.
• Banks and alternative lenders offer more aggressive loan packages, making external funding more accessible.

✅ Earnouts Are Declining in Popularity:



• Earnouts—structured payments based on future performance—have seen a 20-30% decline in $5M-$50M deals.
• Buyers are favoring cleaner, all-cash structures to minimize deal complexity and post-sale risks.

Why Are Earnouts Becoming Less Common?

Earnouts were widely used in previous years to bridge valuation gaps between buyers and sellers, but they’re losing favor in today’s market. Here’s why:

✔️ Stronger Buyer Confidence: With economic conditions stabilizing and more financing options, buyers are willing to pay more upfront rather than defer payments.

✔️ Sellers Prefer Simplicity: Business owners want clean exits without tying their future earnings to post-sale performance metrics.



✔️ Fewer Disputes & Risks: Earnouts often lead to conflicts over performance benchmarks and unexpected post-sale challenges.

What This Means for Business Sellers in 2025

If you’re considering selling your business, these financing trends work in your favor:



✔️ Stronger Negotiation Power: More cash at close means you can negotiate better terms with fewer contingencies.

✔️ Less Risk After Closing: Earnouts often extend a seller’s involvement post-sale—fewer earnouts mean a cleaner, faster exit.

✔️ Higher Valuations for High-Performing Businesses: If your business has strong financials and growth potential, buyers are willing to offer higher upfront payouts.

Next Steps: How to Capitalize on the 2025 M&A Financing Trends

🔹 Ensure Your Business is Financially Strong: A clean balance sheet and steady revenue will attract better financing offers from buyers.



🔹 Work with an M&A Advisor: First Choice Business Brokers SF Bay can help structure the best deal terms and maximize your sale price.

🔹 Time Your Sale Strategically: With buyers paying more cash upfront, now is a great time to explore selling your business.

Contact First Choice Business Brokers SF Bay today for a confidential consultation on how to structure the best deal for your business.

Next in the Series: How Long Will It Take to Sell a Business in 2025?

In our next blog, we’ll break down the average timeline for selling a business, from initial listing to closing, and key factors that can speed up (or slow down) a deal. Stay tuned! 🚀