The MSP Valuation Series | Part 4: Deal Structures and Negotiation Tactics
Based on insights from the MSP Valuation Scorecard workshop series hosted by Kevin Clune of MSP Growth Hacks, featuring Hannah Paige, Director at Worklyn Partners and CFO at Harbor IT.
In the final installment of our MSP Valuation Series, we shift from measuring value to capturing it. After exploring the quantitative and qualitative factors that drive valuation, strategies to improve them, and buyer types shaping today’s market, we now turn to the most pivotal phase: how deals are structured—and how to negotiate terms that align with what matters most to you.
The Four Core Components of Deal Structures
"There are four real ways to structure a deal, meaning there are four components that can make up a valuation or purchase price: Cash at close, seller notes, rolled equity, and earnouts," Paige explains.
Each component carries different implications for timing, risk, and total value. For MSP owners considering an exit, understanding how these pieces fit together is essential to securing a deal aligned with both your business objectives and personal financial goals.
Cash at Close: See Immediate Rewards
Cash at close is the most straightforward. "It's immediate cash upon the closing of the deal. The buyer will pay the seller X amount of dollars at close."
It's the cleanest option—no strings, no contingencies. But that certainty comes at a price. "If you want the most cash at close," Paige explains, "your deal value is going to be lower and you own less of the business."
At Worklyn, we often see this trade-off play out clearly: the more value a seller takes upfront, the less they typically receive over time—because buyers are absorbing more risk and giving up flexibility to structure future incentives. For sellers who prioritize certainty and immediate liquidity, this can still be the right call. But it often comes at the expense of total long-term value.
Seller Notes: Deferred Payments with Interest
The second component is the seller note, which is essentially a loan that you, the seller, make to the buyer as part of the purchase price.
"There's flexibility in maturity, interest rate, and timing of payments," Paige notes, "but it is a loan. It's not equity."
In practical terms, it means you don’t receive the full purchase price upfront. Instead, the buyer agrees to pay you a portion of it over time, typically with interest. Seller notes may offer steady income and tax advantages, depending on how they’re structured. However, they do come with risk: if the business underperforms or runs into trouble post-close, the buyer may delay payments, or default entirely.
For buyers, seller notes make deals more attractive financially because they don’t have to come up with the full amount at closing. That flexibility often enables them to offer a higher overall valuation. “The more they can defer payments through a seller note or an earnout,” Paige says, “the larger the total deal value they’ll be willing to give you.”
Rolled Equity: Invest in the Strategy
The third component of a deal structure is rolled equity. “That’s where you're actually reinvesting a portion of your proceeds into the newly acquired business,” Paige explains. “This allows you to take some chips off the table, but also participate in any upside when the consolidated business sells down the line. This is what people mean by the ‘second bite of the apple.’”
Rolled equity works best for sellers who want to remain actively involved. “If you're rolling a lot of equity, there's often an expectation that you'll be involved in growing the company. That’s a way to incentivize you. We’re all aligned and heading in the same direction,” Paige says.
The opportunity for continued involvement comes with trade-offs. “There’s only so much equity to go around, it’s not unlimited. If you want to retire and step away from the business, then the equity rollover you’re offered will likely be very low, because you're not contributing to future growth.”
Rolled equity is the clearest example of trading immediate cash for long-term upside. “You can take $5 million at close but potentially end up with $20 million over time—if things go well,” Paige says. “It really comes down to how risk averse you are. Do you believe in the buyer’s strategy? Do you want to stay involved?”
Earnouts: Contingent Value Based on Performance
Earnouts, the final and often most complex deal component, are contingent payments based on how your business performs after the sale closes. When structured thoughtfully, they can substantially increase your total deal value. “If the seller believes their business is going to grow or hit certain targets, but the buyer doesn’t want to fully price that in upfront, an earnout is a way to bridge the gap,” Paige explains.
Like other deferred payment mechanisms, earnouts give buyers room to offer a higher total purchase price, while tying some of that payout to future outcomes. But sellers should approach them strategically. “It’s important when you get a deal or an offer put in front of you to really look at the full picture,” Paige advises. “Don’t just focus on the headline number. You want to understand the timing of payments and how that affects your personal outcome.”
Earnouts can be tied to a range of performance metrics: revenue, EBITDA, customer retention, or even employee retention—but not all earnouts are created equal. “You have to align the structure with your strengths,” Paige says. “Are you really good at retaining customers and keeping them happy? Or are you better at bringing in new logos? That’s how you should decide which structure is right for you.”
She advises MSPs to avoid EBITDA-based earnouts, which often create friction. “EBITDA earnouts can lead to a lot of conflict between buyer and seller, questions about what counts as expenses, bonuses, discretionary spending. It can get messy.” Instead, Paige recommends revenue-based earnouts, which are cleaner, easier to measure, and better aligned with seller incentives.
Two common structures to consider:
1. Retention Earnout: For MSPs That Excel at Customer Satisfaction
This structure rewards you for keeping your existing clients post-close.
“Say you’re generating $100 in revenue from 10 customers when the deal closes,” Paige explains. “If two years later those same customers are still paying $100, you earn the full payout. If the number drops or rises, the earnout adjusts accordingly.”
This model works best for MSPs with strong customer relationships and high retention rates.
2. Growth Earnout: For MSPs That Excel at New Business
This model rewards net revenue growth, even if some original customers churn.
“You might agree to grow from $100 to $120 over a year,” says Paige. “If you hit that 20% growth target, you earn your payout—even if some original customers churned and were replaced.”
Growth earnouts work well for MSPs that are focused on sales, marketing, and expansion, even in fast-changing, competitive customer environments.
Turning Value Into a Deal That Works for You
Understanding how a deal is structured—through cash at close, seller notes, rolled equity, and earnouts—is critical. But structure alone doesn’t deliver results. To turn theoretical value into real-world outcomes, MSP owners need to enter the negotiation process with intention, clarity, and strategy. This is where the rubber meets the road. Purchase price is just the headline. How that value is paid out—when, how, and under what conditions—ultimately determines the risk you take, the reward you receive, and how satisfied you’ll be with the outcome.
Importantly, structure isn’t just about mechanics—it’s about motivation. As Paige explains, “Buyers want to minimize upfront cash and maximize their returns. They’re all judged on IRR (internal rate of return), and the farther out they can push cash payments, the better those returns look.” Instruments like earnouts, seller notes, and rolled equity allow buyers to extend higher total valuations while preserving flexibility. These tools shift risk, protect downside, and often help buyers maintain equity control—especially when institutional capital is involved.
But while understanding buyer mechanics is important, it’s not where negotiation strength comes from. That strength comes from knowing what matters most to you—and being able to articulate it clearly. Do you want immediate liquidity? Long-term upside? Operational control? Employee protection? Cultural continuity? A clean exit? Favorable tax treatment? You can’t optimize everything, but you can negotiate toward the one or two outcomes that matter most to you and create real value in the process.
Here are a few priorities worth considering before you begin negotiating:
Total Potential Deal Value (i.e., maximize sale price assuming company continues to perform)
Cash at Close
Maintaining Culture and Employees
Owner/Seller’s Operational Involvement Post Close
Impact on Community/Other Stakeholders
Customers
Owner/Seller and Company Legacy
Partners
Owner/Seller Ongoing Healthcare/Benefits
Taxes
As Paige puts it, “Deals get done when the buyer and seller can make trades.” If you’re clear about what matters most, buyers can tailor a structure to match. That’s how you move from accepting a deal to shaping one.
Clarity creates leverage. And leverage creates better outcomes. Negotiating the deal isn’t about accepting the best offer. It’s about constructing the right one.
Have questions about your MSP’s valuation or how to structure the right deal? Let’s talk—book a meeting with me here.