Earn-Out Structure

Category: business

A contractual provision where a portion of the purchase price is paid out post-closing only if the acquired business hits specific financial milestones.

Earn-outs bridge valuation gaps between buyers and sellers. If a founder claims their data platform will double revenue next year, the buyer can structure the deal to pay $50M upfront, with an additional $20M earn-out paid later *if* those target EBITDA metrics are verified by auditors, shifting the growth risk back to the seller.

Common Examples

• The M&A attorney structured a three-year earn-out based on net retention metrics to ensure the founding engineering team stayed motivated post-acquisition.
• Disputes over earn-out structures frequently occur if the buyer alters the operational accounting methods of the subsidiary after taking control.