The investor’s field guide · D
Deferred consideration
Purchase money that is payable after completion rather than entirely when ownership changes.
Explained by the editorial team
Deferred consideration is part of a purchase price paid at a later date. It may be a fixed obligation or depend on conditions. An earn-out is one contingent form; seller finance may document another arrangement as a loan. The labels alone do not establish the parties’ rights.
A worked example
A contract provides for £400,000 at completion and £100,000 twelve months later. If the second payment is unconditional, disappointing trading does not automatically remove the buyer’s obligation. That differs from a payment expressly dependent on an agreed profit target.
What to examine
Read the payment timetable, interest provisions, security and any rights to deduct claims. Ask what happens if the buyer becomes insolvent or sells the acquired business before the balance falls due. For the buyer, include later payments in cash flow planning alongside tax, debt and working capital. For the seller, the headline price should be considered alongside timing and the risk of non-payment.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.