Earn-Out

An earn-out is a variable purchase price component that is linked to the achievement of defined targets (e.g. revenue, EBITDA) in the years following closing. Earn-outs can bridge differing valuation expectations between buyer and seller and are also an instrument for retaining sellers who carry important operational responsibility.

However, earn-out disputes are among the most common post-closing conflicts. A precise definition of the target parameters and the calculation method is decisive. Also important for the seller are so-called ‘earn-out protection clauses’, which set out how a buyer must conduct itself during the earn-out period.