How Med Spa Earnouts, Seller Notes, and Rollover Equity Actually Work
When a buyer offers $3M, only 60% to 80% is usually cash at close. The rest arrives through earnouts, seller notes, and rollover equity. Here is how each one works, what it is really worth, and how to negotiate the mix.
The headline price is rarely the whole check
When a buyer offers $3M for your med spa, most owners picture $3M wired to their account at close. That almost never happens in the current market. Across private-equity med spa deals, cash at close typically runs 60% to 80% of the enterprise value. The rest arrives through three mechanisms: earnouts, seller notes, and rollover equity.
These aren't tricks. Used well, they can raise your total proceeds and let you share in the upside you helped build. Used carelessly, they leave a third of your price hostage to targets you no longer control. Here's how each one works and what to watch.
Cash at close: your real floor
Start with the number that's certain. Cash at close is the money that hits your account on closing day, no conditions. In current med spa transactions, expect roughly 70% to 85% for institutional platform buyers, sometimes less for smaller deals with more structure.
Treat cash at close as your floor. Everything else is money you might get, on someone else's timeline or performance. When you compare two offers, compare the cash-at-close first, then weigh the rest by how likely it is to actually pay.
Earnouts: getting paid for the future you promise
An earnout ties part of your price to the business hitting agreed targets after close, usually over one to three years. If you tell a buyer your revenue is about to jump because of a new service line or a second location, an earnout is how they say "prove it, and we'll pay for it."
Earnouts commonly represent 10% to 25% of enterprise value in med spa deals. Increasingly they're tied to membership retention, not just revenue, because buyers have learned that revenue can be bought with discounts while retention can't be faked.
The risk is control. Once you sell, you may not run the business the way you did. If the new owner cuts your marketing, changes your pricing, or loses your lead injector, your earnout target can slip through no fault of yours. Protect yourself with three things:
- Targets you can actually influence, defined in writing with a clear formula.
- Covenants that require the buyer to run the business normally during the earnout (keep marketing spend, keep providers, don't gut the P&L).
- The right to see the numbers your earnout depends on, in a specified format, on a set schedule.
A vague earnout tied to "EBITDA" with no protective covenants is where sellers lose money. A precise earnout with covenants and reporting rights is where sellers get paid for real growth.
Seller notes: you become the lender
A seller note is when you finance part of the purchase price. The buyer pays you over time, with interest, like a loan you extended. In the lower-middle market, seller notes often run 5% to 15% of enterprise value, over 24 to 60 months, at roughly a 6% to 10% coupon.
Buyers like seller notes because they reduce the cash they need up front and because your willingness to hold a note signals confidence in the business. Sellers can like them because the interest adds to total proceeds and a note can smooth your tax timing.
The risk is credit. You're now an unsecured (or lightly secured) creditor of a business you no longer control. If the buyer struggles, your note is often behind the bank in line to get paid. Reduce that risk by:
- Securing the note against assets where you can.
- Keeping the note short and the balance modest relative to the total.
- Building in acceleration rights if the buyer defaults or sells the business again.
Rollover equity: betting on the second bite
Rollover equity is when you reinvest part of your proceeds into the buyer's larger company instead of taking all cash. In platform deals, rollover often runs 20% to 40%; in smaller tuck-in acquisitions, 10% to 30%.
This is the mechanism most likely to make you wealthy, and the one most likely to disappoint. Here's the logic buyers pitch: a private-equity platform buys your spa at, say, 5x, folds it into a group that will eventually sell at 10x or more, and your rolled equity rides that "multiple arbitrage." If the platform sells in four or five years at a higher multiple, your second bite can exceed your first.
The reality is that rollover is a genuine investment with genuine risk. You're now a minority owner in a company you don't control. The upside depends on the platform's execution, the debt they carry, and whether the eventual exit happens at the multiple everyone hoped for. Some rollovers pay off spectacularly. Some are worth less than the cash you gave up.
Before you roll, understand:
- What percentage of the combined company you'd own, and whether it's common or preferred equity.
- Where you sit relative to the PE firm's preferred return (they usually get paid first).
- What happens to your stake if the platform raises more money or takes on more debt (dilution).
- The realistic timeline and range of exit outcomes, not just the pitch.
We break down the buyer's side of this in what private equity actually wants in a med spa.
Putting the pieces together
Here's a representative structure for a $3M platform deal:
| Component | Share of price | Amount | Certainty |
|---|---|---|---|
| Cash at close | 70% | $2,100,000 | Certain |
| Rollover equity | 20% | $600,000 | Depends on platform exit |
| Earnout | 7% | $210,000 | Depends on hitting targets |
| Seller note | 3% | $90,000 | Depends on buyer credit |
The headline is $3M. The certain money is $2.1M. The other $900,000 is a spread of bets with different odds. That's not a reason to reject structure, it's the reason to evaluate each piece on its own terms.
How to negotiate the mix
Maximize cash at close first. It's the only number with no conditions. A slightly lower headline with more cash can beat a higher headline loaded with contingent pieces.
Price the risk of each contingent component. An earnout you fully control is worth close to face value. One tied to metrics you can't influence is worth a fraction. Discount accordingly when comparing offers.
Get the protections in writing. Covenants on earnouts, security on notes, and clear terms on rollover equity are where the real negotiation happens. The headline number gets the attention; these terms decide what you actually collect.
Understand your taxes on each piece. Cash, notes, earnouts, and rollover are all taxed differently and on different timelines. Loop in your CPA before you agree to a structure, not after.
The bottom line
A good deal structure can pay you more than an all-cash offer and let you share in the growth ahead. A bad one dangles a big headline while a third of it quietly depends on things you no longer control. Know your certain floor, price every contingent dollar for its real odds, and negotiate the protective terms as hard as you negotiate the number.
The starting point is knowing what your business is worth before a buyer frames the structure for you. You can get a confidential valuation to establish your number first.