Definition
Earn-out
Contingent purchase-price payments triggered by post-close performance milestones.
Earn-outs bridge valuation gaps when buyer and seller disagree on the forward view. Common structures: revenue-based, EBITDA-based, milestone-based (product, customer, regulatory). The hard part is governance — defining who controls the operating decisions that drive the metric, and what happens if the buyer integrates or pivots in ways that affect it. Litigation around earn-outs is common; clean drafting and an aligned operating plan are the best preventative.
See also
Read further in The Guide
Designing Earn-Out Structures
Why earn-outs fail more often than they succeed, and how to design metrics, governance, and acceleration triggers that survive contact with reality.
Earn-Out Modelling and Fair Value
Understanding earn-out fair value, buyer integration into headline valuation, and the role of options theory in assessing these contingent consideration structures in M&A.