The headline price still looks familiar. The math underneath it has changed.
A pattern shows up in almost every deal that closes in 2026. The seller looks at the LOI, sees a number close to what they expected, and takes it as a sign that the market is roughly where they thought. The number is real. The number is often even good. But underneath it, three specific terms have shifted against sellers over the last eighteen months, and the effect on what the seller actually takes home is meaningfully different from what the headline suggests.
Most sellers do not notice. Their reference point is a deal they saw close in 2021 or 2022, or advice from a peer who sold in 2023. The market has moved since then, and it has moved on the specifics rather than the top-line number. What follows is a plain reading of where.
The reason this is worth flagging now is that the shifts are happening quietly, deal by deal, without anyone announcing them. There is no headline in the trade press that says "buyers have moved earnouts to twenty-four months." There is no bulletin that says "working capital pegs are getting more aggressive." The changes accumulate one LOI at a time, and each individual buyer treats their version as "market." A seller with no advisor or with a sale process that only saw one or two bidders often has no way to know that the version of market they were shown is not the version another advisor would have negotiated.
Earnouts have gotten longer
The earnout used to be the exception, reached for when a buyer had a specific concern that could be resolved with a specific milestone. That is no longer the shape. Earnouts in 2026 are longer, they are more frequently included by default rather than in response to a specific risk, and they are being used to bridge valuation gaps that used to get bridged with cash. Where a seller might have seen a twelve-month earnout of ten to fifteen percent of the deal in 2022, they are now seeing twenty-four to thirty-six months on twenty to thirty percent of the deal, sometimes more.
What matters is what happens inside the earnout window. The seller is no longer running the business. The buyer is, sometimes badly, sometimes in ways that make the earnout targets harder to hit. Marketing spend gets cut. Product decisions get made by people who did not build the product. The earnout, from the seller's side, is a bet on the buyer's operating competence in a business the seller no longer controls. The longer the earnout, the more that bet compounds.
The right response is not to refuse earnouts. It is to be specific about what triggers the payment, to shorten the window wherever possible, to negotiate protections against buyer conduct that would make targets harder to hit, and to price the cash-at-close as if the earnout will pay out at fifty to sixty percent rather than one hundred.
Working capital pegs have gotten more aggressive
Working capital is the quiet term where value gets transferred without either party talking about it out loud. Every transaction sets a peg for the amount of working capital the business is expected to carry over to the buyer at close. If the business delivers more than the peg, the seller gets the difference. If it delivers less, the seller writes a check.
The mechanics are boring. The impact is not. Buyers in 2026 are setting pegs more aggressively than they were two years ago, using longer historical averages that include lower points, and being more restrictive about what qualifies as working capital. The specific move that has become more common is the twelve-month average peg instead of the trailing three-month average. For a business with any seasonal variation, a twelve-month average often produces a higher peg, especially if the business is closing during a low-working-capital month. The difference gets paid out of the seller's proceeds without ever appearing in the price paragraph of the LOI.
Sellers who do not have a strong CFO or an experienced advisor often do not see this until the closing statements, at which point the difference is already priced in and hard to renegotiate. The fix is to negotiate the peg methodology at the LOI stage, before the price gets locked.
Reps and warranties have tightened
The third shift is in the representations and warranties that a seller makes about the business at close. These are the promises that the numbers are accurate, the customer relationships are as described, the code is what the seller says it is, the compliance status is clean. If any of them turn out to be materially wrong, the buyer has a claim against the seller for damages.
The tightening is happening in three specific places. Survival periods for general reps have extended from twelve to eighteen months in 2022 to twenty-four months or more, with longer periods for fundamental reps like tax and IP. Caps on liability are getting higher in both dollar terms and as a percentage of deal value. Basket sizes, the thresholds below which a claim cannot be made, are getting lower or being restructured as first-dollar rather than deductible. The mechanism is not fundamentally different from what it was three years ago. What has changed is how much money is at stake and for how long.
The response is not to refuse the tighter reps. It is to price them into the negotiation properly, to insist on knowledge qualifiers where appropriate, to make sure disclosure schedules are thorough enough to knock out claims that would otherwise stick, and to negotiate reps insurance early so the cost sits with the party best able to absorb it. This is legal work, and the choice of legal counsel matters here more than it did in a friendlier climate.
What the three terms have in common
The three shifts do not look related. Earnouts, working capital, and reps and warranties sit in different parts of the document and get negotiated by different people. What ties them together is the direction. All three have moved buyer-favorable over the last eighteen months, and all three do their damage after the LOI has been signed, when the seller's leverage has already peaked.
The LOI is the moment of maximum seller leverage. Once it is signed, every subsequent negotiation happens under time pressure and against a growing sunk cost of legal fees and diligence. Sellers who assume they can fight these terms at the definitive agreement stage are usually surprised. Reopening a term at that stage is possible, but it is expensive and the seller usually gives ground somewhere else.
The practical implication is that preparation matters differently than it used to. The old model of preparation was cleaning up the financials and building out the team so that the business would show well in diligence. That is still necessary. What has been added is a second layer of preparation that has nothing to do with the business itself and everything to do with the document. Knowing before the process starts what an acceptable earnout looks like, what peg methodology you will insist on, and where your reps sit in the market is now part of the work. A seller who does not know these things before the LOI arrives has already lost the argument.
The right time to negotiate these three terms is before the LOI is signed. Not at the LOI. Before it. Which means the seller has to know what to negotiate before the buyer has told them what the deal will look like. The founders who close well in 2026 are the ones who understood, before they sat down at the table, that the fight was not going to be about the number.