What Is Seller Financing? | Agency M&A Definition
Seller financing is a deal structure where the agency’s seller acts as a lender, allowing the buyer to pay a portion of the purchase price over time through scheduled installments after closing. It is one of the most common deal structures in agency M&A, appearing in roughly 60-70% of transactions for agencies under $5M in revenue.
Seller Financing in Agency M&A
Most marketing agency acquisitions involve some form of seller financing because buyers — whether individual operators or small private equity groups — rarely have enough cash to fund 100% of the purchase price upfront. When selling a digital marketing agency for $2M, a typical structure might involve 60-70% cash at closing with the remaining 30-40% financed by the seller over 2-4 years. For sellers, offering financing expands the pool of qualified buyers and often results in a higher total purchase price because the buyer accepts less risk at closing. The terms typically include a fixed interest rate (6-10%), monthly or quarterly payments, and a promissory note secured by the agency’s assets. Sellers should negotiate personal guarantees from the buyer and include acceleration clauses that trigger full repayment if the buyer defaults or sells the agency. The key risk for sellers is that a buyer who mismanages the agency may be unable to make payments, leaving the seller to choose between forgiving the debt or pursuing costly litigation to recover their business.
How Seller Financing Affects Agency Valuation
Seller financing can increase the total deal value by 10-20% compared to an all-cash offer because buyers are willing to pay a premium for favorable payment terms. A buyer who offers $2.4M with 40% seller-financed often beats a $2.1M all-cash offer in the seller’s eyes — even accounting for time value of money and default risk. However, the present value of a seller-financed deal depends on the interest rate, payment schedule, and the buyer’s creditworthiness. Sellers should model scenarios where the buyer defaults after 12 or 24 months to understand their downside. In the UK market, seller financing (often called “deferred consideration”) follows similar structures but may involve different security mechanisms under English law.
Example
An email marketing agency sells for $1.8M total. The deal is structured as $1.08M (60%) cash at closing, with $720K (40%) seller-financed over 36 months at 8% annual interest. Monthly payments to the seller are $22,560. Over the three-year term, the seller collects $812,160 on the financed portion — $92,160 in interest above the $720K principal. The buyer’s effective total cost is $1.892M. If the buyer defaults after 18 months (having paid $405,937), the seller can enforce the promissory note and security agreement to recover the remaining balance or reclaim agency assets.
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