Evaluate the whole transaction—not just its headline price. Work out what each holder is likely to receive and when, test the buyer’s ability to close, examine what the letter of intent (LOI) commits you to, and price in your post-sale work and potential liability. Then compare that outcome with realistic alternatives and your own priorities.
Start with what the offer actually pays
An acquisition may use cash, stock, or a combination in exchange for some or all of a company’s existing equity, as the U.S. Securities and Exchange Commission (SEC) explains in its Exit Strategies and Liquidity guidance, last reviewed April 24, 2026. The headline purchase value is not necessarily the amount you personally receive.
Separate the payment components
List each component, its conditions, and its expected payment date. Include cash at closing, buyer stock, escrow or other holdbacks, a seller note, earnout payments, and any other deferred consideration. For stock, identify the security you would receive, transfer restrictions, and whether there is a practical way to sell it. Privately held securities are often illiquid; even shares associated with a public offering may be subject to lockups, depending on the route and terms. Those general points do not establish the value or liquidity of a particular buyer’s stock.
Reconcile the stated value to your proceeds
Ask how the agreement defines enterprise value and equity value, then work through cash, debt, working-capital adjustments, transaction expenses, escrow, and any other purchase-price adjustments. The calculation depends on the definitions in the actual agreement; a worked example in Promise Legal’s acquisition preparation guide illustrates the mechanics but is not a market benchmark.
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Next, trace the distributable amount through the company’s charter, capitalization table, investor rights, options, and other equity documents. The SEC notes that obligations are paid before remaining assets are distributed to shareholders, and liquidation preferences can determine how shareholders share those proceeds. The waterfall in an acquisition depends on the company’s documents and the transaction structure, so have counsel model it for your specific cap table.
Read the LOI before you agree to exclusivity
An LOI may describe the assets being acquired, deal structure, payment terms, escrow, and closing conditions. It may be nonbinding overall while still containing binding provisions. Acquire.com’s seller-process guide also notes that accepting an LOI can start a no-shop period, limiting discussions or negotiations with other buyers under the terms described there.
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Before signing, have transaction counsel identify which provisions bind you and check:
- The exclusivity period, any extension mechanism, and how either party can end it.
- Confidentiality obligations and responsibility for expenses.
- What must happen before closing, including diligence, approvals, and consents.
- Whether the proposed payment structure and purchase-price adjustments are clear enough to evaluate.
A short or fast-moving LOI process deserves questions, not assumptions. Acquire.com lists an LOI issued without meaningful engagement and a buyer’s refusal to provide proof of funds as warning signs. They are prompts to investigate, not proof that a buyer is dishonest or unable to close. Verify the buyer’s identity, acquisition vehicle, authority, and available or committed financing independently.
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Assess closing certainty and the buyer’s remaining conditions
Ask what funds are available or committed, who controls them, and what conditions remain before the buyer can use them. Map the unresolved items—such as diligence, internal approvals, third-party consents, or financing conditions—to the agreement’s closing requirements. Determine when either party can terminate and what happens to exclusivity, expenses, or deposits if the transaction does not close. A credible offer on paper is not the same as cash received.
Discount contingent and deferred payments for their conditions
An earnout is consideration payable only if specified targets are met after closing. Its face amount alone does not tell you how likely or controllable payment is. Review the provisions that determine both measurement and your ability to verify it:
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- Metric and period: Is payment tied to revenue, EBITDA, customers, product milestones, or another defined measure, and over what period?
- Accounting and access: Which accounting rules apply? Can you inspect records, receive reports, and challenge calculations through audit or dispute procedures?
- Operational control: Can the buyer change pricing, allocate costs, integrate operations, or discontinue a product in ways that affect the metric?
- Employment and other events: Does payment depend on continued service? What happens after resignation, termination, a role change, or a later sale by the buyer?
- Boundaries: Are there caps, floors, or other limits on the amount payable?
Promise Legal describes disputes that can arise when buyers change pricing, allocate costs differently, or consolidate operations. That is a qualitative reason to scrutinize the terms, not evidence of any particular payout probability. Treat an earnout as uncertain until its definitions, controls, and remedies are clear.
Understand your contractual exposure after closing
The definitive purchase agreement—not the LOI summary—sets the final deal terms. Review whether the transaction is structured as a stock or asset purchase, which liabilities and contracts are implicated, and what consents are needed. Then examine seller representations and warranties, pre-closing covenants, closing conditions, indemnification, termination rights, and post-close price-adjustment rules.
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Indemnity provisions determine when a seller may have to compensate the buyer for specified losses. Pay particular attention to any cap on liability, basket or threshold for claims, escrow supporting claims, and survival period for representations. A Baker McKenzie / Legal 500 guide to U.S. technology M&A, generated September 12, 2025, describes negotiated caps and longer or higher limits for some fundamental representations. Those are general descriptions, not terms promised by your contract. The wording, governing law, and deal structure control; ask counsel to explain your actual exposure.
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Your personal outcome can depend on what happens after closing as much as on the purchase price. The SEC notes that company leaders and employees often stay for a negotiated period. Clarify your own role, reporting line, compensation, service commitment, transition duties, and termination terms. Keep purchase consideration distinct from pay or incentives tied to continued work, and ask a tax adviser to review how the agreement characterizes each payment.
Ask how the transaction treats employee equity, unvested awards, bonuses, and retention arrangements. For U.S. startup transactions, the Baker McKenzie / Legal 500 guide describes assuming target equity awards, bonus pools, and re-vesting as possible retention approaches; none applies automatically. Also review any restrictive covenants. Their scope and enforceability vary by jurisdiction, so do not assume a non-compete or similar restriction is uniformly enforceable.
Compare the offer with real alternatives and your own threshold
The SEC identifies acquisition as one possible exit route, alongside a public offering and asset liquidation. It does not establish which route will produce the best result for a particular startup. Compare the offer with alternatives that are genuinely available to your company:
- Continue operating, if the business has the resources and prospects to do so.
- Raise additional capital, if the company can access it on acceptable terms.
- Approach other buyers or negotiate a different structure, while accounting for time, cost, and the risk of losing the current offer.
- Decline or delay, if the current terms do not meet your requirements and the company can support that choice.
Before negotiating, define your minimum acceptable outcome for payment certainty, net proceeds, role and service obligations, employee treatment, and future freedom. There is no universal score that can decide whether a transaction is “right”: the trade-off depends on company records, the cap-table waterfall, investor rights, tax position, jurisdiction, and your priorities. Have transaction counsel and a tax adviser check the underlying assumptions; consider an M&A adviser if you need help with valuation or the sale process.
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