All-cash deals have fallen to roughly half the market, and a third of lower-middle-market sellers now carry an earnout worth a third of their closing payment. The headline multiple has quietly become the least reliable part of the deal.
Every founder who has ever sold a business remembers the number. It gets said out loud at the closing dinner, repeated to friends, and carried around for years afterward as the summary of a decade's work. It is almost always the enterprise value, and it is almost never what arrived in the bank account.
That gap has always existed. What changed over the last two years is how wide it got, and how many sellers walked into it without noticing.
All-cash deals fell to 51 percent of transactions in 2025, down from 58 percent the year before. Earnouts now appear in 29 percent of lower-middle-market deals, rising to 35 percent for deals under $25 million — the size band where most founder-owned businesses actually trade. When an earnout is present, its median size is equivalent to 34 percent of the closing payment. And purchase price adjustments — the working-capital and net-debt true-ups that quietly move the number after signing — showed up in more than 90 percent of deals.
Put those together and the transaction most founders are preparing for no longer exists. What exists instead is a package: a smaller certain payment, a larger uncertain one, and an adjustment mechanism that almost always applies.
You are still running the business. You just stopped owning it.
The financial consequence of an earnout is obvious enough. The governance consequence is the one that surprises people, and it is worse.
A third of your consideration is now contingent on the performance of a business you no longer control. The buyer will make decisions in the first eighteen months — reallocating your sales team, folding your product into a broader platform, standardizing your pricing, changing your comp plan, moving costs onto your P&L from theirs — every one of which is defensible on its own terms, and several of which will move the number your payment depends on.
An earnout converts a seller into a minority stakeholder in someone else's operating decisions. You retain all of the exposure to the outcome and none of the authority over the inputs.
Sellers negotiate earnouts as if the risk is performance risk — will the business hit the target. It rarely is. It is definitional risk: whose costs get allocated to the earnout entity, what counts as revenue in a bundled deal, who arbitrates when the buyer's integration plan and your earnout metric point in different directions. Those questions are answered in the purchase agreement, in language that gets drafted late and reviewed while everyone is exhausted.
Why the headline multiple stopped being a useful benchmark
There is a second trap sitting right next to the first, and it is the number founders most often anchor on.
Median enterprise value to EBITDA ran at 13.4x through the first half of 2026, down from 14.6x in 2025. That statistic gets quoted at owners constantly. It also describes a set of transactions with a median target EBITDA of roughly $64.5 million — a completely different market from a business doing $4 million of EBITDA in a specialty services niche. Applying it to your own company is not conservative or aggressive; it is simply a category error, and it is the single most common one in founder valuation conversations.
Visual 1 — Two numbers a seller cares about, and which one is actually negotiable
Headline multiple | Deal structure | |
|---|---|---|
What it determines | The stated enterprise value | How much of it you receive, when, and on what conditions |
Who it's benchmarked against | Transactions often 10x your size, with different buyer pools | Your own deal, and nothing else |
Buyer flexibility | Constrained by their model, debt capacity and committee | Considerably wider — structure is where buyers create room |
Where sellers spend effort | Nearly all of it | Whatever is left in the final two weeks |
Where the money moves | On paper | In practice — 34% of closing payment sits here in a typical earnout |
How to read it: The two columns are tradeable against each other. A buyer constrained on cash will often pay a higher headline number precisely because they expect the structure to claw it back. Sellers who understand that can trade the reverse — a lower stated price for a cleaner one.
The buyer's position is weaker than they let on
Here is the part that should change how a founder walks into the room. The structural shift toward contingent consideration is not a signal that buyers have stopped wanting to buy. It is a signal that they have become expensive to finance.
Private equity was sitting on close to $1.1 trillion of dry powder at the end of 2025. More than 9,000 companies were held in PE portfolios, and over 63 percent of them had been held for four years or more — against a median holding period that stretched from 4.3 years in 2017 to 5.4 years in 2024. That is an industry with capital it must deploy and an inventory it must eventually sell. Lower-middle-market deal volume reflects it: one platform recorded 3,523 deals in the second quarter of 2026, up nearly 5 percent year over year, at a time when global deal counts were softening.
Demand is there. What is constrained is cash at close, because higher borrowing costs cut debt capacity. Earnouts, rollover equity and seller notes are the instruments buyers use to bridge that gap — which means they are not a verdict on your business. They are a symptom of the buyer's balance sheet, and that reframing is worth a great deal at the table.
What to settle before you agree to a number
Ask for the cash-at-close figure first, not the enterprise value. Compare offers on that line. It is the only one that is not a forecast.
Price the earnout at a discount and say so. If a third of your consideration is contingent, treat it as worth materially less than face and negotiate the headline accordingly — or trade it away for certainty.
Fight over the earnout's accounting, not its target. Cost allocation, revenue recognition on bundled sales, and who resolves disputes matter more than whether the target is $6m or $6.5m.
Negotiate what the buyer may not do during the earnout period. Restructuring your sales team or repricing your product should require consent if your payment depends on the result.
Model the purchase price adjustment before signing. It applies in more than nine out of ten deals. Treat it as certain, not as boilerplate.
What this changes
None of this is an argument against selling. It is an argument against preparing for the wrong negotiation. Most founders spend two years improving the business to move the multiple and two weeks reviewing the mechanism that decides how much of that multiple they will ever see. The effort is inverted, and in a market where half of deals are no longer all cash, the inversion is now expensive.
The number you announce at the closing dinner is a story. The structure underneath it is the transaction. Negotiate the one you'll actually live in.
Sources and method. A LookatBusiness original. Deal-structure figures — all-cash deals at 51 percent in 2025 against 58 percent in 2024; earnouts in 29 percent of lower-middle-market deals and 35 percent of deals under $25 million; median earnout equivalent to 34 percent of the closing payment; purchase price adjustments in more than 90 percent of deals — together with median EV/EBITDA of 13.4x through H1 2026 (against 14.6x in 2025, per CohnReznick, median target EBITDA $64.5m), private equity dry powder of nearly $1.1 trillion at year-end 2025 (Cherry Bekaert), holding-period and portfolio-inventory data, and Axial's 3,523 lower-middle-market deals in Q2 2026 (up 4.79 percent year over year), as compiled by Salt Creek Advisory, published August 10, 2026. Aggregate multiple data skews toward larger transactions and should not be applied to founder-scale businesses; that caveat is the source's own and is repeated here deliberately. The negotiation framework is LookatBusiness's analysis. This is commentary, not legal or financial advice — deal terms should be reviewed with your own counsel and advisers.
