Earn-out
An earn-out is part of a business purchase price paid later, and only if the business hits agreed targets after closing, common in BC deals
An earn-out is a portion of the purchase price that the seller receives after closing, conditional on the business reaching agreed financial or operational targets over a defined period. It bridges the gap between what a seller believes the business will earn and what a buyer is willing to pay for at closing.
Earn-outs are common in BC deals where future performance is uncertain, where the seller is staying on for a transition or where a buyer cannot finance the full price up front. They work best when the metric is simple, such as revenue or gross profit, when the measurement period is short and when the seller retains enough influence over the result to earn it. They work badly when the metric is vague, when the buyer controls the costs that drive it or when the seller needs the money at closing.
In practice an earn-out needs careful drafting by both sides' lawyers: the definition of the metric, accounting policies, what happens if the buyer sells or restructures the business, dispute resolution and whether the earn-out is secured. We advise on the commercial terms, model what the seller is likely to receive under realistic scenarios and compare the deal against a lower price paid in full. A seller should treat an earn-out as money at risk, not as part of the headline price.
Start with a confidential conversation.
Tell Ali where the business is and what you want to happen next. You leave with a straight read on value, timing and the two or three moves that matter, whether or not we work together.