A deal structure in which part of an acquisition price is paid later, contingent on the acquired business hitting agreed performance targets. A bridge across a valuation gap, built out of deferred disagreement.
Buyer and seller could not agree what the business is worth, so they agreed to let the next two years decide. The disagreement did not go away. It moved into the contract, where it compounds.
Last reviewed 3 July 2026 · Free and ungated
Put the deal structure to selected senior operators who have lived through earn-out periods on both sides, before terms are agreed.
Challenge the assumptions before committingAn earn-out makes a portion of the purchase price conditional on post-completion performance, typically revenue, EBITDA or defined milestones measured over one to three years. The seller receives the deferred payment only if the targets are met; the definitions, measurement rules and governance rights are set out in the sale agreement.
Earn-outs exist because the seller believes a growth story the buyer will not pay for up front. As a preparation question for the deal decision, the structure cuts both ways. It reduces the buyer's risk of overpaying for projections, but it also constrains the buyer's freedom after completion: integrating the business, changing its sales model or moving its people can all be argued to have damaged the earn-out, and sale agreements increasingly oblige the buyer to run the business in ways that protect it. An acquirer whose deal logic depends on rapid integration and whose price structure depends on an earn-out has signed two contradictory plans.