The investor’s field guide · E
Earn-out
A part of an acquisition price that depends on the acquired business meeting agreed future conditions.
Explained by the editorial team
An earn-out makes some of the purchase price contingent on future performance or another defined event. It can bridge a disagreement about prospects, but it also moves part of the negotiation into the period after completion. Neither side should assume payment is certain.
A worked example
A buyer pays an agreed amount at completion and a further amount if revenue exceeds a specified level over the following year. The contract must define which revenue counts, how it is measured and who controls decisions affecting it.
What to examine
Accounting policies, customer transfers, management charges and investment decisions can all change the result. Sellers need to understand how much influence they retain; buyers need room to operate the business. Agree access to information, dispute procedures and the treatment of an early resale. The legal and tax consequences depend on the jurisdiction and the exact arrangement. An earn-out differs from an unconditional payment that is simply deferred.
General information, not investment, legal or tax advice. Examples are illustrative. Read the disclaimer.