{"id":22288,"date":"2026-10-22T16:14:05","date_gmt":"2026-10-22T16:14:05","guid":{"rendered":"https:\/\/seegman.com\/how-to-structure-deferred-payments-and-cross-guarantees-in-small-market-ma-transactions\/"},"modified":"2026-10-22T16:14:08","modified_gmt":"2026-10-22T16:14:08","slug":"how-to-structure-deferred-payments-and-cross-guarantees-in-small-market-ma-transactions","status":"publish","type":"post","link":"https:\/\/seegman.com\/en\/how-to-structure-deferred-payments-and-cross-guarantees-in-small-market-ma-transactions\/","title":{"rendered":"How to structure deferred payments and cross-guarantees in small-market M&A transactions"},"content":{"rendered":"\t\t
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How to structure deferred payments and cross-guarantees in small-market M&A transactions<\/h1>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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In small-market M&A transactions<\/a>, deferring part of the purchase price is not an exception but a common feature of the deal structure. It reflects not only the buyer\u2019s liquidity constraints, but also a recurring environment of limited financing, imperfect information and strong personal dependence within the business. From a legal perspective, this has a clear consequence: after closing, the seller becomes a significant creditor within the transaction\u2019s contractual framework.<\/p>\n

This change in position is not neutral. Unlike in larger transactions, the seller\u2019s credit risk in the small market is rarely transferred to financial institutions or insurers. It is almost always managed within the transaction itself, through contractual mechanisms that must coexist with the other commitments assumed by the parties.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Deferred payment as a post-closing legal relationship<\/strong><\/h2>\n

Treating deferred consideration as a mere payment schedule often leads to structural mistakes. Once part of the price remains outstanding, the transaction creates an ongoing obligation that affects the balance between the parties and their conduct after closing.<\/p>\n

In the small market, deferred consideration rarely operates in isolation. It usually coexists with shareholders\u2019 agreements<\/a>, retention commitments, non-compete clauses or transitional services agreements. All these elements influence, directly or indirectly, the buyer\u2019s ability to generate funds and, therefore, the seller\u2019s realistic expectation of receiving payment. Overlooking this interdependence is one of the main sources of subsequent friction.<\/p>\n

Nature of deferred consideration and coordination with the contractual structure<\/strong><\/h2>\n

From a technical perspective, deferred consideration operates as financing provided by the seller to the buyer. This characterisation is not merely conceptual: it affects how security arrangements, priority of claims and their interaction with other post-closing contractual relationships should be structured.<\/p>\n

It is therefore not enough to provide for acceleration events or default interest. The seller\u2019s receivable must be integrated into the contractual package<\/a> governing the transaction after closing. In particular, consideration must be given to how it interacts with potential claims for breach of the SPA, penalties arising from retention or non-compete commitments, or obligations assumed under the shareholders\u2019 agreement.<\/p>\n

Security arrangements in smaller transactions<\/strong><\/h2>\n

In this context, the question is not whether security should exist, but which forms of security are genuinely viable. Traditional arrangements such as bank guarantees, cash deposits or substantial escrow structures are often economically disproportionate in smaller transactions. Their financing cost may erode the economic balance of the deal or make closing unviable.<\/p>\n

Consequently, in most cases, security must be structured using elements within the transaction itself, recognising that enforcement may have effects extending beyond the purely financial.<\/p>\n

Cross-guarantees and the balance between buyer and seller<\/strong><\/h2>\n

Cross-guarantees arise where the buyer\u2019s deferred payment obligation and the seller\u2019s warranties covering pre-closing risks<\/a> rely, in whole or in part, on the same assets or individuals. Common examples in the small market include pledges over shares, security interests over key assets or personal undertakings given by significant shareholders.<\/p>\n

Such structures require particularly careful analysis. Enforcement of security in favour of the seller may affect the buyer\u2019s corporate control; similarly, a significant claim under the SPA may impair the buyer\u2019s ability to pay the outstanding price. These are not exceptional situations but reasonably foreseeable scenarios in this market segment.<\/p>\n

Contractual drafting should anticipate these interactions and regulate their consequences, avoiding solutions that, although formally sound, would be impracticable when disagreements arise.<\/p>\n

Alternative structures<\/strong><\/h2>\n

Where institutional forms of security are unavailable, the small market requires solutions more closely connected to the business and the parties. In practice, these may include purchase-price retentions, agreed set-off mechanisms, subordination of intragroup debt, restrictions on dividend distributions or limitations on certain strategic decisions while part of the purchase price remains outstanding.<\/p>\n

These solutions do not replace traditional forms of security, but they may perform an equivalent function if coherently integrated into the contractual framework. The objective is not to accumulate mechanisms, but to understand the risk being addressed, its impact and the circumstances in which enforcement would be reasonable.<\/p>\n

Checklist for reviewing deferred consideration before closing<\/strong><\/h2>\n

As a practical review of the deal documents, it is worth considering the following:<\/p>\n