Earn-Out
A deferred payment mechanism where part of the acquisition price is contingent on the target meeting agreed financial or operational milestones post-closing.
Also known as: Earnout, Contingent consideration
One-line definition
An earn-out bridges a valuation gap: the seller gets more if performance targets are hit post-closing, reducing buyer risk.
Typical metrics
- EBITDA over 1–3 years post-closing.
- Revenue targets.
- Customer retention milestones.
- Regulatory approvals.
Risks
Earn-outs generate significant post-deal disputes. Sellers argue the buyer interfered with operations; buyers argue targets weren't met. TS helps design robust earn-out definitions at signing.
Related terms
SPA (Share Purchase Agreement)
The definitive legal agreement governing the sale and purchase of shares in a company, including price, conditions precedent, representations, warranties, and indemnities.
Equity Value
The value of the shareholders' stake in a business, derived by subtracting net debt from enterprise value.
Normalized EBITDA
EBITDA restated to remove one-off items and reflect a sustainable, run-rate level of profitability.