The catch in a $10M sale: $1M arrives after closing

Key takeaways

You agree to sell your business for $10 million. The buyer secures $8 million in senior debt and contributes $1 million of personal capital. To cover the remaining $1 million, you agree to accept a seller note. A seller note is a loan from the seller to the buyer that covers part of the purchase price. The buyer agrees to repay the amount over a specified period, usually with interest. At closing, you receive $9 million before expenses and other adjustments, with the remaining $1 million payable over time.

The seller note helps the buyer complete the acquisition with less upfront capital. For the seller, it creates an additional income stream through interest payments. It also introduces repayment risk because the buyer must generate enough cash to meet the agreed schedule. If the business performs below expectations, the buyer may struggle to make payments.

The note’s position in the financing structure determines which lender has priority if the buyer faces financial difficulties. Senior lenders often require seller notes to rank below their loans in repayment priority. The buyer can generally make scheduled payments on the seller note as long as the senior loan agreement permits them. If the buyer defaults or breaches certain loan covenants, the agreement may require payments on the seller note to stop until the issue is resolved.

The subordination agreement may also restrict the seller's ability to recover missed payments. Some agreements require the seller to wait for a specified period after default before taking legal action to collect the debt. The senior lender may have the first claim on business assets used as collateral, leaving fewer assets available to repay the seller note if the buyer cannot meet its obligations.

The next consideration is repayment capacity. Before accepting the note, request a financial model showing how the buyer expects to service its debt. The model should include operating cash flow, taxes, capital expenditures, working-capital requirements, and scheduled senior-debt payments. Test what happens if EBITDA declines, customers take longer to pay, or operating expenses increase. The business should have enough remaining cash to support seller-note payments under reasonable downside assumptions.

The repayment schedule also matters. Some notes require regular principal and interest payments, while others allow interest-only payments followed by a large principal payment at maturity. A large final payment may require the buyer to refinance the debt or sell the business. The seller should understand how the buyer intends to fund that payment and whether the business can support the proposed schedule.

Review the interest rate, maturity date, payment frequency, collateral, guarantees, and default provisions. Confirm whether unpaid interest continues to accrue during payment delays and whether the seller can demand immediate repayment after a default. A personal guarantee may provide additional protection.

Before closing, make sure the repayment terms reflect what the business can realistically afford after covering operating expenses and senior debt. If the buyer needs strong revenue growth or future refinancing to repay the note, consider negotiating a shorter repayment period, additional collateral, or more cash at closing.

M&A activity involving training technology and simulation companies reached 53 transactions through October 13, 2026, up 1.9% from 52 during the same period in 2025, according to Capstone Partners. Annual deal volume rose from 26 transactions in 2020 to 59 in 2025, after falling to 20 in 2022. Activity recovered to 43 transactions in 2023 before easing to 40 in 2024. With 53 deals already recorded in 2026, the sector is nearing its full-year 2025 total. Capstone links acquisition activities to efforts to modernize training systems, demand for advanced simulation technologies, and buyers expanding their technical capabilities.

Capstone Partners examines acquisition activity in the training and simulation sector, covering transaction volumes, buyer types, valuations, and recent deals. The report identifies 53 transactions through October 13, 2026, with strategic buyers accounting for 67.9% of activity. Private equity add-on acquisitions increased from 7 to 12, while platform acquisitions declined from 6 to 5. The report also reviews recent acquisitions, including FVLCRUM Funds' purchase of Fidelity Technologies and Precise Systems' acquisition of Ternion, showing how buyers are expanding their product portfolios and customer relationships through acquisitions.