This post uses hypothetical scenarios for illustrative purposes only. It does not describe any actual client, transaction, or representation, and is not legal advice.
On June 10, 2026, Figure Technology Solutions filed an 8-K announcing the acquisition of Kiavi, the AI-driven business-purpose lender. The 8-K is a useful read because it is a short, clean disclosure of a balance-sheet carve-out M&A structure that has been spreading quietly across fintech and lender deals for the last eighteen months. The deal is two transactions stapled together. A Figure subsidiary will merge into Kiavi in a cash merger paying approximately $532 million to Kiavi equityholders for the operating platform. Contemporaneously, a Kiavi subsidiary holding the loan-portfolio assets will be sold to a newly formed joint venture between Figure and a third party — widely reported to be Sixth Street — closing alongside the merger.
The structure now has a name in the deal community: the “two-track close.” It rhymes with the bifurcated F-reorg structures used in PE founder-rollover deals for a decade, but the analogy is loose. The two-track close solves a balance-sheet-versus-platform mismatch — the buyer wants the operating company’s technology and team but does not want, or cannot easily fund, the float on the balance sheet.
I have seen versions of this in three of the last five LOIs across my desk in fintech-adjacent deals. The structure is sound. The drafting around it — particularly the seller indemnification scaffold, the inter-conditionality, and the regulatory-risk allocation — is not yet standardized. Sellers in a two-track close should understand what the structure does to their leverage at three points: signing, regulatory cooperation, and post-closing claims.
What the balance-sheet carve-out M&A structure is solving
Lender targets — whether bank-adjacent fintechs, specialty finance companies, marketplace lenders, BDCs, or non-bank originator-servicers — carry two materially different assets in one corporate wrapper. The first is the operating platform: the technology, the underwriting team, the servicing infrastructure, the brand. The second is the balance sheet: loan inventory, warehouse-line draws, retained interests in securitizations, deferred fee income, and the cash that supports the float.
A buyer who wants the platform — usually because the buyer has a strategic thesis about distribution synergies or product-set expansion — does not necessarily want the balance sheet on its own books. The balance-sheet acquisition is expensive in dollars, expensive in regulatory capital if the buyer is bank-adjacent, and adds credit risk the investment committee did not approve. The natural solution is to bifurcate.
The bifurcated form sends the operating company into the buyer through a cash merger, and sends the balance sheet to a separately capitalized joint venture — typically a buyer-and-credit-fund vehicle (Sixth Street’s role in the Figure deal is the canonical example) with the cost of capital to hold loan paper at a return profile the buyer cannot match. The transactions are inter-conditional, signed and closed together. The Figure 8-K confirms the pattern: the merger is conditional on “the contemporaneous closing of the sale of a subsidiary of Kiavi to a newly formed joint venture.”
The seller economics are unaffected at the high level: the same dollar consideration is paid for the same assets. The seller’s risk profile, however, is different in ways that are not obvious from the LOI.
The signing-day problem: two contracts, one walk-away
The first thing a seller in a two-track close should look at is the cross-termination architecture. There are two contracts: a merger agreement for the operating company, and a purchase agreement — in the Kiavi structure, an equity purchase agreement for the subsidiary that holds the loan book — for the balance-sheet vehicle. Each contract has its own closing conditions and its own walk-away rights.
The drafting choice is whether the contracts are fully cross-conditioned — failure or termination of one automatically triggers the failure or termination of the other — or whether the contracts have independent close mechanics. The seller’s preferred posture is full cross-conditioning. If the balance-sheet JV cannot close because its financing falls through, the seller wants the merger to terminate without seller liability, because the bifurcated structure was not what the seller bargained for.
Buyers, particularly buyers whose strategic motivation is platform-focused, sometimes resist full cross-conditioning. They argue the merger should be able to close even if the JV cannot, with the balance-sheet assets distributed to the seller in lieu of the JV consideration or held in escrow for a delayed sale. The seller’s negotiating fix is to draw a hard line on cross-conditioning at the LOI stage. Once the agreements are drafted independently, restitching them is expensive and the seller’s leverage has migrated to the buyer.
The Figure–Kiavi 8-K signals full cross-conditioning on the seller-friendly side: the merger’s termination rights include termination “if the agreement governing the required sale of certain assets is terminated pursuant to its terms or is otherwise no longer in full force and effect.” The Figure 8-K is publicly available on EDGAR for sellers who want to read the public-side disclosure pattern.
The regulatory-risk allocation that lives in two places
Two-track closes attract two regulatory analyses. The operating-company merger goes through ordinary antitrust review — HSR if thresholds are crossed, plus industry-specific approvals (lender licensing, state money-transmitter licensing, GSE counterparty approvals). The balance-sheet JV may attract a different review: bank regulatory if the JV partner has banking affiliations, fund-level disclosures if the credit fund has registration obligations, and ABS-side disclosure if the balance sheet includes securitized residuals.
The seller’s risk-allocation challenge is that the merger agreement and the balance-sheet PSA are typically drafted by different lead lawyers within the seller-side team, with different drafting conventions for regulatory covenants and reverse termination fees. The two regulatory tracks can move at different speeds. The merger track can be cleared while the balance-sheet track is still in regulatory review. Figure’s deal shows the asymmetry plainly: the merger carries a $25 million Figure-to-Kiavi termination fee triggered specifically on regulatory-license failure, but only if the balance-sheet sale is the obstacle and other conditions are satisfied. A seller-side reader should ask what the analogous fee structure looks like on the balance-sheet side — and whether the buyer can walk away there at no cost.
The drafting fix is to harmonize the regulatory cooperation covenants and the reverse termination fee triggers across the two agreements. The seller-friendly framing of regulatory covenants and termination fees needs to apply across both contracts, not just the higher-profile one. The Figure-side $25 million figure also fits the broader 2026 pattern in which the reverse termination fee has quietly become an antitrust co-pay rather than a true walk-right price.
The indemnification scaffold gets bifurcated, too
The trickier piece — and the piece sellers most often miss — is how the indemnification structure splits between the two transactions. Reps and warranties insurance on a two-track deal is usually structured to cover the merger reps, not the balance-sheet PSA reps. The carrier underwrites the operating company, not the loan book. The loan book has its own loan-level reps in the PSA, traditionally backstopped by a seller indemnity or a seller-funded escrow that mirrors the loan-buyback structure residential and commercial loan markets use.
A seller in a two-track close is typically signing up for two different indemnification regimes. The merger side runs through RWI with the standard fraud carve-out and short survival period. The balance-sheet side runs through loan-level reps with longer survival, narrower materiality qualifiers, and a separate escrow funded out of the balance-sheet consideration. The seller’s aggregate exposure can be materially larger than the founders running the deal initially understand — because they have read the RWI-side coverage but have not internalized that the balance-sheet PSA operates under a different and less-insured regime.
The negotiation move is to push for RWI to wrap the balance-sheet reps where possible, or to negotiate the loan-level escrow down to a number that reflects the seller’s actual diligence position on the book. Carriers will quote RWI on balance-sheet reps in some lender deals, particularly where the loans are originated under a standardized credit box; pricing runs higher than ordinary RWI but the coverage is achievable. Where the carrier will not wrap the loan reps, the seller’s leverage is the survival period and the escrow size, both of which the buyer’s first draft will set unfavorably.
The closing-statement mechanics get harder
The two-track close also complicates the closing-statement mechanics in ways that catch deal lawyers off guard. The merger closing has its own working-capital target, debt and cash adjustments, and transaction-expense waterfall. Notably, the Figure deal flags this explicitly: the merger consideration is “subject to certain customary adjustments… including for Kiavi’s cash, indebtedness, transaction expenses, operating net working capital and warehouse working capital.” That last term — warehouse working capital — is the tell that the balance-sheet side and the operating-company side are sharing a definitional perimeter that has to be drafted in both contracts identically.
The two adjustments interact. Cash on the operating-company balance sheet at closing is usually defined to exclude cash held for the benefit of the loan book; that exclusion needs to be drafted with reference to the balance-sheet PSA’s definitions, because the two contracts are looking at the same cash from different angles. A founder who agrees to a “cash-free, debt-free” merger close without checking how the balance-sheet PSA defines the perimeter is exposed to a buyer argument that operating-company cash should have been swept into the balance-sheet side — which means the merger consideration just got smaller without anyone saying so.
The drafting move is to insist on a single, integrated closing statement that runs both transactions. The accountant’s certification is then a unified document. Disputes about which side of the line a particular dollar belongs on are resolved in one forum rather than two. This is a small ask and almost always accepted; sellers who do not ask for it run two parallel post-closing adjustment processes with no procedural mechanism for resolving the inter-contract disputes that inevitably arise.
The structure is not going away
The two-track close is a sensible structural innovation. It lets buyers pay strategic-buyer multiples for the platform without taking the balance sheet, and it lets credit-fund JV partners deploy capital into loan portfolios at the cost-of-capital match a strategic buyer cannot offer. The Figure–Kiavi deal is the highest-profile recent example, but the pattern has been visible across fintech and financial services M&A, specialty lender, and marketplace M&A for several quarters.
Sellers walking into the structure need to understand they are signing two transactions, not one. The signing-day cross-conditioning, the regulatory-risk allocation across two tracks, the bifurcated indemnification scaffold, and the integrated closing-statement mechanics each require the seller’s deal team to think about the merger and the balance-sheet PSA as a single deal at the negotiating table even though they are two contracts on paper. Practitioner-side work on the two-track structure is still mostly bespoke. The forms have not yet calcified into market standards, which means seller leverage on the LOI-stage choices is unusually high right now — and the founders who do not push at the LOI will be reading carrier exclusions and regulatory cooperation covenants under closing-week pressure.
The simplest summary I give clients verbally when a buyer floats a two-track structure: this is two deals stapled together, and your job is to make sure they stay stapled in the places that protect you and unstapled in the places that protect the other side. The governance and structural side of the analysis matters as much as the economic side, because the failure modes are mostly structural.
If you are a founder or board member running a process where the buyer has floated a two-track close, or you are post-LOI and reading two contracts where you expected one, feel free to reach out to my firm manager, Magda, at Magda@montague.law, or fill out our contact form. Mention you read this post.
