Valuation Gaps in Dutch M&A

How buyers and sellers still get deals done with earn-outs, vendor loans, rollover equity and structured consideration

The Dutch M&A market is not closed. But it is selective.

Recent mid-market data shows lower momentum in the Netherlands, relatively smaller transactions and more disciplined buyer behaviour. At the same time, Dutch deal processes do not appear to fail on valuation gaps as often as one might expect.

That is an important signal for international buyers, sellers, private equity sponsors, founders and deal counsel. Dutch deals can still get done, but not always through a simple compromise on headline price. Increasingly, the answer lies in the structure of the transaction.

A valuation gap is rarely just a disagreement about price. More often, it reflects uncertainty. Can the target deliver the forecast? Is EBITDA sustainable? Is working capital properly normalised? Will management stay? Is financing available? What did due diligence reveal?

When buyer and seller assess those risks differently, the legal and commercial solution is often found in the SPA architecture.

This article is part of M&A Insights: Dutch Deal Practice for Buyers, Sellers and Investors and connects to Buying a Dutch Company: Practical Insights for International Buyers.

A valuation gap is usually a risk allocation issue

In an acquisition, the seller often looks at what the business can become. The buyer focuses more on what has already been proven.

That difference is normal. The seller wants to be paid for future upside. The buyer takes the risk that the upside may not materialise.

In a selective market, buyers are more critical of revenue quality, customer concentration, margin sustainability, working capital, management depth, financing and integration risk. Sellers, on the other hand, do not want temporary uncertainty to become a permanent valuation discount.

The real question is therefore not only: what is the price? The more useful question is: which risks are dealt with through price, and which risks are dealt with through structure?

Earn-outs: paying for future performance

An earn-out can help bridge different views on future performance. Part of the purchase price is paid after completion if agreed targets are met.

This can be useful in founder-led businesses, growth companies, software businesses, consumer businesses or companies with uncertain near-term performance. The buyer avoids paying fully upfront for unproven future results. The seller keeps upside if the business performs.

But earn-outs are also one of the most common sources of post-closing disputes. After completion, the buyer usually controls the business, while the seller’s additional consideration still depends on its performance.

A Dutch earn-out should therefore be drafted carefully. Which metric applies: revenue, gross margin, EBITDA, recurring revenue or an operational KPI? What is the measurement period? Which accounting principles apply? Can the buyer integrate the business, allocate costs or change strategy? What information and audit rights does the seller have?

An earn-out is not only a payment clause. It is a post-closing governance arrangement.

For more detail, see Earn-outs in Dutch M&A.

Vendor loans and deferred consideration

A vendor loan or deferred consideration can also bridge a valuation or financing gap. Instead of receiving the full purchase price at closing, the seller leaves part of the purchase price outstanding as a loan or deferred payment obligation.

For the buyer, this can make the acquisition financeable. For the seller, it may preserve headline value. But the seller remains exposed to the buyer’s credit risk after closing.

That is why a vendor loan must be aligned with the SPA. Key points include interest, maturity, repayment schedule, subordination, security, information rights and events of default. The parties must also decide whether buyer warranty claims can be set off against the vendor loan.

A vendor loan is not an administrative afterthought. It is a financing instrument within the transaction structure.

See also Vendor Loans and Deferred Consideration in Dutch Acquisitions and Vendor Loan Agreement in Dutch Acquisitions.

Rollover equity: aligning sellers, founders and management

Rollover equity is common in Dutch private equity and mid-market transactions. The seller, founder or management team reinvests part of the sale proceeds into the buyer’s acquisition structure.

This can help bridge a valuation gap because the seller continues to participate in future upside. The buyer gains comfort that management or the founder remains aligned with the next growth phase. The seller receives partial liquidity and keeps exposure to a future exit.

But rollover shifts the discussion from price to governance.

What rights does the rolling shareholder receive? Is the rollover made into ordinary shares, preference shares or a management participation structure? Which reserved matters apply? What information rights exist? What happens if management leaves? Are there drag-along and tag-along rights? How is the next exit controlled?

A rollover arrangement only works if the economics and governance documents fit together.

See also Rollover Equity in Dutch M&A Transactions and Management Participation in Dutch Acquisitions

Locked box or completion accounts

Not every valuation disagreement is solved through an earn-out or deferred payment. Sometimes the issue is cash, debt and working capital at closing.

A locked box mechanism gives price certainty. The purchase price is fixed by reference to a historical balance sheet date, with protection against leakage between the locked-box date and closing.

Completion accounts create a post-closing adjustment. The final purchase price is adjusted based on actual cash, debt and working capital at closing.

Both mechanisms can work in Dutch M&A. The choice depends on the target, quality of financial information, working capital volatility, seller trust, buyer protection and process dynamics.

A locked box reduces post-closing price adjustment disputes, but requires clear leakage protection. Completion accounts give the buyer a true-up mechanism, but require precise definitions, accounting principles and a dispute process.

For broader context, see Locked Box vs Completion Accounts in Dutch M&A.

Due diligence should drive the SPA structure

Due diligence should not remain a report. It should feed directly into the transaction structure.

Customer concentration may lead to a specific condition, earn-out or indemnity. Uncertain working capital may lead to completion accounts. Management dependency may lead to rollover, retention arrangements or leaver provisions. Financing uncertainty may lead to deferred consideration, vendor financing, escrow or financing conditions.

The strongest Dutch transactions connect due diligence findings to SPA drafting. Risks are translated into price, warranties, indemnities, conditions precedent, covenants, closing deliverables and post-closing rights.

For international buyers, this is an important Dutch implementation point. The issue is not only identifying risk. The issue is translating that risk into enforceable Dutch transaction documentation.

Why the LOI matters

Many valuation disputes are created too early.

If the letter of intent fixes the price too firmly, limits due diligence too narrowly or says too little about purchase price mechanics, the SPA negotiation becomes harder. The seller believes the price is agreed. The buyer wants to revisit economics after diligence. The result is friction.

A well-drafted LOI should identify the main economic risk-allocation tools. Will the deal use locked box or completion accounts? Is an earn-out contemplated? Will there be vendor financing? Is rollover equity part of the structure? Are financing, due diligence and management continuity conditions still open?

The LOI does not need to contain every detail. But it should avoid sending the parties into the SPA phase with different assumptions about how valuation risk will be allocated.

See also The Dutch M&A Process Explained: From LOI to Closing.

Practical conclusion

In Dutch M&A, valuation gaps do not automatically kill deals. But they do require structure.

A valuation gap usually reflects uncertainty about future performance, financing, working capital, management, customer relationships or due diligence findings. If that uncertainty is not addressed, it becomes a price dispute.

Earn-outs, vendor loans, deferred consideration, rollover equity, locked box mechanisms, completion accounts, escrow and conditions precedent can all help bridge the gap. But they only work if they are drafted clearly and aligned with the commercial risk.

In a selective Dutch mid-market, the strongest deal party is not always the party that negotiates hardest on headline price. It is often the party that can translate uncertainty into an executable transaction structure.

FAQ

What is a valuation gap in Dutch M&A?
A valuation gap arises when buyer and seller disagree on the value of the target. In practice, it often reflects different views on future performance, risk, financing or working capital.

How can an earn-out bridge a valuation gap?
An earn-out defers part of the purchase price and makes it conditional on future performance. It allows the seller to benefit from upside while reducing the buyer’s upfront risk.

What is a vendor loan in a Dutch acquisition?
A vendor loan is seller financing. The seller leaves part of the purchase price outstanding as a loan to the buyer after closing.

When is rollover equity useful?
Rollover equity is useful where the seller, founder or management team remains involved and reinvests part of the sale proceeds into the buyer structure.

Why should valuation structure be addressed in the LOI?
Because the LOI sets expectations for the SPA. If purchase price mechanics, earn-outs, vendor financing or rollover are not addressed early, the parties may enter the documentation phase with different assumptions.

About Dirk de Waard

Dirk de Waard is a Dutch corporate, M&A and private equity lawyer and partner at Venture Lawyers in Amsterdam. He advises buyers, sellers, founders, private equity sponsors, management teams and international counsel on Dutch acquisitions, LOIs, SPAs, purchase price mechanisms, earn-outs, vendor loans, rollover equity, due diligence and Dutch deal implementation.

ViottaLaw is Dirk’s personal insights platform. Legal services are provided through Venture Lawyers.

Structuring a valuation gap in a Dutch acquisition?

A valuation gap does not need to block a transaction. With the right earn-out, vendor loan, rollover, price mechanism, security or condition, uncertainty can often be turned into an executable Dutch deal structure.

Dirk de Waard advises buyers, sellers and international counsel on Dutch M&A transaction structures and documentation. Contact Dirk at dirk.dewaard@viottalaw.com to discuss a Dutch acquisition, LOI or SPA.