The Price Gap Is a Structure Problem
A seller wants 7 times earnings. Your model says 5. Both numbers can be defended, and if you treat the difference as a contest over a single figure, one of you walks away. The deal was never really about the multiple. It was about who carries the risk that the earnings are actually there, and structure is how you split that risk rather than argue about it.
What these businesses actually trade for
Start with the market instead of your feelings about it. GF Data, which tracks private equity acquisitions, put the lower middle market average at roughly 7.2 times EBITDA through 2025, about flat against 2024. That average hides the thing that matters most, which is size. Businesses at $10 to $25 million of enterprise value changed hands at about 5.9 times earnings. Businesses at $100 to $250 million went for around 10 times. Nothing about the economy or the calendar changed between those two figures, yet the multiple nearly doubled.
That spread is not the market being irrational. A larger company has more management depth, less dependence on any one person, more customers, cleaner books, and a longer line of buyers waiting when it sells again. Every one of those lowers the odds that the earnings continue, and the multiple is just risk priced in reverse. Sector shifts it too. GF Data recorded healthcare near 8.3 times in the first half of 2025 and business services around 7.5, with manufacturing closer to 6.5. Know your real comparable before you plant a flag on a number.
The seller's number is not crazy
Here is the part buyers miss. The owner has watched this business from the inside for 20 years. He has seen the earnings survive a recession, a lost customer, a bad hire. From where he sits, the durability is obvious, so 7 feels conservative.
You cannot see any of that yet. You have 3 years of financials and a management presentation. From where you sit, the durability is a claim, so 5 feels generous. Neither of you is lying. You are looking at the same business with different amounts of information, and no amount of negotiation closes an information gap. Only time and evidence do.
Structure divides the risk instead of splitting the difference
This is why the answer is rarely to meet at 6. Meeting in the middle just means you both agreed to be wrong by the same amount. The better move is to price the parts you are confident about now and tie the rest to the earnings showing up.
An earnout pays part of the price only if the business hits agreed numbers over the next year or two. You are not haggling over whether the earnings are real. You are letting them prove it on the seller's confidence.
A seller note has the seller finance part of the price and get paid over time. He stays exposed to the business he just told you was rock solid, which tends to make the telling more honest.
Rollover equity keeps the seller holding a stake in the combined company. The person who knows exactly where the risk is buried keeps his own money sitting on top of it.
Each of these does the same job. It moves risk to whoever is most sure the earnings will hold. And that produces a quiet test worth paying attention to. A seller genuinely certain of his number should take the earnout without much fuss, because to him it is free money he already expects to collect. When he fights the structure harder than he fought the price, he has just told you something about how real the number is. That is not a trick. It is the most useful information you will get in the whole negotiation.
Where this leaves you
Do not walk into the room ready to defend a multiple. Walk in ready to propose a structure. Decide what you will pay in cash on day one for the earnings you can actually see, and put the seller's optimism where it belongs, on the earnings only he can see for now. Bridge built right, a deal that looked 2 turns apart closes. Bridge skipped, you lose a good business over a gap you both could have engineered around.