FROM THE DESK OF FADI MALOUF | OCTOBER 2026
Last issue I told you the Fed hiked and the market split in two. This week, the part most buyers get backwards.
Everyone negotiates the price. Almost nobody negotiates the structure. The structure is where the money is.
The Signal
Price is one number. Structure is five. How much cash at close, how much the seller carries, how much rides on performance, what the bank will lend, and what that debt costs.
Three of those five moved in the last few weeks.
The Fed raised the federal funds rate to a range of 3.75% to 4.00% on September 16. SBA 7(a) loans price off prime, which sat at 6.75% going into the meeting, with variable rates on loans over $250,000 capped at prime plus 3%, per Lendio. Every quarter point flows straight to your monthly payment.
Family offices are moving the other direction. In FINTRX's Q2 2026 report, 92.7% of newly formed family offices said they want direct deals. Only 6.3% wanted private credit. More families want to own the company, not lend to it. That is a partner sitting on the sidelines of your deal if you know how to ask.
The Teardown
An illustrative example. Not a real deal, not a client, just the math.
A services business with $3M of EBITDA. Seller wants 6x. That is $18M.
Buyer A fights on price and gets it to $15.5M, all cash at close. Bank debt on most of it at today's rates. One soft quarter and the coverage ratio gets tight.
Buyer B pays the full $18M. Structured:
$11M cash at close, funded by the bank and buyer equity.
$4M seller note, seven years, subordinated, on standby for the first 24 months.
$3M earnout paid over three years if EBITDA holds above $3M.
Buyer B paid the seller's number. Buyer B also put less bank debt on the business, put the seller's own money behind the forecast, and only pays the last $3M if the forecast comes true.
If EBITDA holds, then Buyer B paid $18M for a business that earned it. If EBITDA slips, then Buyer B paid $15M and the seller took the miss.
Higher headline price. Lower risk. The seller gets to say he got his number... and he did.
The Number
29% of lower middle market deals under $50M now carry an earnout, and 35% of deals under $25M, per SRS Acquiom's 2026 deal terms report.
And the SBA rule that makes seller paper matter. On a 7(a) acquisition loan a seller note can count toward the 10% equity injection, but only if it sits on full standby for 24 months, no principal and no interest, per this breakdown of the standby rules.
Read that again if you are a seller. The paper is not a favor. It is the price of a bank saying yes.
The Move
Buyers. On your next LOI, write two versions. One at a lower price, all cash. One at the seller's price with a note and an earnout. Show both. Let the seller choose between his number with structure or a smaller number with certainty.
Owners. Decide today what you would carry. Amount, rate, years. Have it ready before the LOI, not after.
If the bank gets you most of the way and you need a bridge to the number, that is a conversation my team has every week. Reply with the word STRUCTURE and we will talk.
Forward motion,
Fadi
This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities, financial instruments, or investment products. FM Enterprises and Fadi Malouf do not provide legal, tax, investment, or financial advice. Any business, acquisition, or capital related discussion is subject to further review, appropriate due diligence, and applicable professional guidance.