Most lower-mid-market acquisitions are financed in layers, not with one cheque: senior debt at 2x-3.5x EBITDA (roughly 40-60% of the price), a seller note of 10-30%, and an equity cheque covering the remaining 30-50%, often with an earnout or rollover equity bridging any valuation gap. Nobody funds the full enterprise value in cash, and nobody should. In the $5m-$50m range, structure is where deals are actually won: it sets your return, your downside, and whether the seller signs.
What does the real capital stack look like?
Every acquisition stack solves the same problem: fill the space between the purchase price and your own money with the cheapest capital that will tolerate the risk. Ranked from cheapest to most expensive: senior debt, mezzanine or unitranche where it exists at this size, the seller note, and finally your equity. The cheaper the layer, the harder its terms. Senior lenders take security, covenants and first claim on cash flow; your equity takes whatever is left. The craft is stacking as much cheap capital as the business can service without a single soft quarter tripping a covenant.
One discipline before any of it: the EBITDA you structure against must survive diligence. Lenders lend against verified, adjusted EBITDA, not the seller's deck. The same logic applies from the other side of the table in adjusted EBITDA and add-backs: every unproven number costs you at a multiple.
How much senior debt will lenders actually give you?
In the lower mid-market, senior leverage typically lands at 2x-3.5x EBITDA. Where you sit in that band depends on size (a $5m EBITDA business borrows at a higher multiple than a $1.5m one), revenue quality (contracted and recurring revenue tops the band, project revenue sits at the bottom), customer concentration and asset backing. Below roughly $2m of EBITDA, mainstream banks thin out and you are into SBA-style, asset-based or specialist cash-flow lenders at lower multiples and higher pricing.
Expect amortisation over four to six years or partial bullet structures, pricing at a margin over base rate, and maintenance covenants, usually leverage and fixed-charge or debt-service coverage. The covenant maths matters more than the headline multiple: 3x leverage that leaves 1.5x coverage is safer than 3.5x that leaves 1.1x.
Why do sellers accept seller notes?
A seller note, typically 10-30% of the price, subordinated, 5-10% coupon over three to five years, looks like a concession. Sellers accept them for hard-nosed reasons. First, the note is often the difference between their headline number and a lower all-cash offer: it lets them defend the price they told their family. Second, spreading consideration over several years can suit their planning. Third, a founder who believes their own forecast has little reason to fear paper that pays out if the business performs. From the buy side, the note stretches your equity cheque, reads as quasi-equity to the senior lender, and keeps the seller economically invested in a clean handover, which is exactly why lenders like seeing one in the stack.
In our network, the buyers who win competitive processes through buy-side mandates present the note as alignment, not as a discount: interest paid current, sensible subordination, and security terms the seller's lawyer can live with.
When do earnouts and rollover equity earn their place?
An earnout bridges a genuine disagreement about the future: the seller prices the hockey stick, you price the history. Typical shape is 10-25% of total consideration, measured over one to three years, against revenue or gross profit rather than EBITDA, because EBITDA-based earnouts invite disputes over every cost you add post-close. Cap it, define the metric in one sentence, and agree who controls the levers that drive it.
Rollover equity is different: the seller keeps 10-30% of the equity in the new structure. It cuts your cheque, signals confidence to your lender, and keeps the founder's knowledge in the building through transition. It suits a founder who wants a second bite of the apple. It does not suit a burnt-out seller who wants a full exit, and forcing rollover onto that seller is how deals die in exclusivity, one of the patterns covered in red flags when buying a business.
What are typical numbers for each layer?
Benchmarks we see across lower-mid-market deals:
- Senior debt. 2x-3.5x EBITDA; 40-60% of enterprise value; four-to-six-year amortisation; margin over base rate.
- Seller note. 10-30% of price; 5-10% coupon; 3-5 years; subordinated, interest current, principal as a bullet.
- Earnout. 10-25% of total consideration; 1-3 year measurement window; revenue or gross-profit metric preferred.
- Rollover equity. 10-30% retained by a seller who stays involved post-close.
- Equity cheque. 30-50% of enterprise value after the layers above are placed.
- Entry multiples. Typical lower-mid-market bands: services and consumer brands 3.5x-9x EBITDA, agencies 3.5x-7.5x, distribution 3.5x-7x, software 6x-15x EBITDA; under roughly $500k of earnings, deals price on SDE at 1.8x-4.2x. Landing inside those bands is its own discipline, covered in how to value an acquisition target.
A worked structure on a $5m EBITDA deal
Take a B2B services business with $5m of verified EBITDA, agreed at 5.5x: $27.5m enterprise value.
- Senior debt. 2.5x EBITDA = $12.5m (45% of EV), amortising over five years.
- Seller note. $4m (15%), 8% coupon, interest paid current, principal due year four.
- Equity cheque. $11m (40%).
Now sanity-check the cash flow. At a 9% all-in senior rate, year-one interest is about $1.1m; add $2.5m of amortisation and $320k of note interest and total debt service is roughly $3.9m against $5m of EBITDA, before tax and capex. Tight but survivable for a capex-light services business; reckless for one needing $1m a year of reinvestment. And if the seller holds out for 6x? You do not raise the cheque. You add a $2.5m earnout on gross profit over two years and hold the funded structure exactly where it is. Price flexes through contingent layers; debt service should not.
How does the structure shift with rate cycles?
The stack breathes with the cost of debt. When rates rise, the same EBITDA services less debt, so senior bands compress from 3x-3.5x towards 2x-2.5x, and the gap has to come from somewhere. In tight debt markets, seller notes widen towards 20-30% of price, earnouts appear more often, and equity cheques push past 50%. Entry multiples soften too, but slower than leverage falls, which is why buyers who can flex structure keep closing while purely leverage-dependent buyers stall. When rates fall, the reverse: senior stretches, notes shrink, cash-at-close rises and competition pushes multiples back up. The constant through both halves of the cycle: underwrite to at least 1.3x fixed-charge coverage on conservative numbers, and let price, not coverage, be the variable that moves.
What to do next
Before you structure anything, anchor the price: run your target's sector and size through our comparable transactions tool to see what similar businesses have actually sold for. If you are acquiring at 8-9 figure enterprise value, review our active deals or talk to us about accessing founder-led businesses before they reach the open market.
What is your business actually worth?
Run your numbers through our free valuation tool. Ten questions, an indicative range built on real transaction multiples, and the exact build-up behind it.
Get your free valuation ↗Frequently asked questions
How much can I borrow to buy a business?
In the lower mid-market, senior lenders typically advance 2x-3.5x EBITDA, which usually covers 40-60% of the purchase price. Contracted or recurring revenue, low customer concentration and asset backing push you to the top of the band. Below roughly $2m of EBITDA, mainstream banks thin out and specialist or asset-based lenders step in at lower multiples and higher pricing.
What is a typical seller note in a business acquisition?
A typical seller note is 10-30% of the purchase price, subordinated to the senior lender, with a 5-10% coupon over three to five years, interest paid current and principal repaid as a bullet. Sellers accept notes because they preserve the headline price versus a lower all-cash offer and signal confidence in their own forecasts.
How much equity do I need to buy a $5m EBITDA business?
At a 5.5x multiple, a $5m EBITDA business costs around $27.5m. With senior debt at 2.5x EBITDA ($12.5m) and a 15% seller note ($4m), the equity cheque is roughly $11m, or 40% of enterprise value. Across the lower mid-market, expect to fund 30-50% of the price in equity, less where the seller rolls equity.
Are earnouts a good idea when buying a company?
Earnouts work when they bridge a genuine disagreement about future performance, not when they paper over doubts about the historicals. Keep them to 10-25% of total consideration, measured over one to three years, against revenue or gross profit rather than EBITDA, with the metric defined in one sentence and a hard cap. EBITDA-based earnouts invite post-close disputes.
How do interest rates affect acquisition financing?
Higher rates compress senior leverage from around 3x-3.5x EBITDA towards 2x-2.5x, because the same cash flow services less debt. The gap is filled by larger seller notes (20-30% of price), more earnouts and equity cheques above 50% of enterprise value. Whatever the rate cycle, underwrite to at least 1.3x fixed-charge coverage on conservative numbers.