Definition - What does Deferred Consideration mean?
Deferred consideration is a portion of the purchase price that is payable by the buyer in the future, after closing. Purchase price is negotiated on the basis of a fair market value of the target firm. The actual amount of consideration in all forms is determined and the terms of payment are decided.
Divestopedia explains Deferred Consideration
A variety of factors influence the actual negotiated price. Payment may be in the form of cash, debt, assumption or payment of liabilities, stocks, or future payouts. There will be a payment up front in the form of equity in the buying firm or a promise to pay cash depending on the achievement of profit targets or turnover targets. Future payments are agreed upon for the following issues:
- Payment interval
- Balloon payment
- Form of payment
- Restrictive and affirmative covenants
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