Deferred Consideration

Part of the purchase price is paid later

A secondary buyer and seller can agree that the buyer will not pay the entire purchase price at closing.

The unpaid amount becomes a deferred payment obligation.

SEC-filed fund disclosures describe secondary acquisitions where all or part of the purchase price is paid over time and characterize the unpaid amount as increasing the buyer fund's leverage.^[1]

Example

A buyer agrees to purchase a portfolio for $50 million.

Terms require:

• $35 million at closing
• $15 million twelve months later

The seller has agreed to finance part of the transaction economically, even if the legal documents do not label it a conventional loan.

The buyer gets immediate exposure to the acquired assets while retaining $15 million of cash for another year.

Why buyers use deferred consideration

Potential benefits include:

• lower cash required at closing
• improved short-term liquidity
• ability to match purchase-price payments with expected distributions
• greater capital efficiency

For a secondary fund, those benefits can improve deployment flexibility.

But postponing payment does not reduce the contractual purchase price. It changes timing and creates an obligation.

Deferred consideration can increase effective leverage

A buyer controls the acquired interest before paying the full price.

Economically, the unpaid balance can act like financing.

If the assets decline in value, the deferred amount may still be payable unless the contract provides otherwise.

That can magnify losses relative to cash paid at closing.

SEC financial statements for a secondaries fund in 2026 separately reported deferred purchase-price related balances, illustrating that these structures remain an active part of secondary-market accounting and cash-flow management.^[2]

Cash-flow sweeps may change the economics

Some deferred-purchase arrangements require distributions received from the acquired funds to be paid to the seller until the deferred price is satisfied.^[1]

That means the buyer may not freely retain early distributions.

The structure can therefore alter:

• cash-on-cash timing
• IRR
• liquidity
• leverage
• available capital for new investments

Deferred is different from contingent consideration

Deferred consideration is generally an agreed amount paid later.

Contingent consideration depends on a future event or performance condition.

A secondary transaction can include both, but they should not be treated as synonyms.

Reference-date adjustments remain separate

A transaction can have:

• a reference-date NAV
• interim contribution and distribution adjustments
• a final purchase price
• deferred payment terms

Each layer answers a different question.

The buyer should avoid combining purchase-price adjustments with the separate issue of when the agreed price is actually paid.

Seller credit risk also matters

From the seller's perspective, accepting deferred consideration means part of the sale proceeds remains exposed to the buyer's ability to pay.

The seller may negotiate protections such as:

• guarantees
• security interests
• escrow
• covenants
• cash-flow sweeps
• default remedies

The strength of those protections affects the true value of the deferred amount.

Common mistakes

“Deferred consideration lowers the purchase price.”

No. It delays payment unless the contract separately changes the amount.

“It is the same as an earnout.”

Not necessarily. Earnouts are contingent; deferred payments can be fixed.

“Only the buyer benefits.”

Not always. A seller may accept deferral to achieve a higher headline price or facilitate execution.

“Deferred consideration has no effect on fund leverage.”

Wrong. Unpaid purchase-price obligations can create leverage-like exposure and liquidity risk.^[1]

Deferred-consideration analysis should model two sets of returns: the acquired asset's economics and the financing benefit or cost created by delayed payment. A structure that boosts headline IRR through payment timing may not improve total-value creation.