Deferred consideration

Deferred consideration is a portion of the acquisition price that is not paid at closing but at a later date, subject to the passage of time or the fulfilment of specified conditions. It may take the form of a vendor loan (the seller finances part of the price), a deferred cash payment or an earn-out. It is used when the buyer lacks full financing capacity at closing, when both parties wish to reduce immediate cash exposure, or when the valuation gap between buyer and seller can be bridged by deferring a portion of the price. From a valuation perspective, deferred consideration must be discounted to its present value at closing.

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Example: a Swiss SME is acquired for CHF 10.0 million total consideration: CHF 7.5 million paid at closing and CHF 2.5 million deferred over 2 years at 3.5% interest, secured by a pledge on the acquired shares. The present value of the deferred consideration at closing is CHF 2.33 million, reducing the effective EV to CHF 9.83 million — a relevant distinction for the seller's net proceeds calculation.

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Hectelion values deferred consideration components and advises on their structuring to align buyer and seller interests in transactions with constrained financing.