Earn-out

Part of the price paid only if the business hits agreed targets after closing. It bridges a valuation gap between buyer and seller.

Earn-out in round numbers

Hypothetical, in US$ millions: a buyer pays 400 upfront and agrees to pay another 50 only if next-year revenue reaches the defined 120 threshold and all other conditions are met. Total undiscounted consideration is up to 450, not a certain payment of 450.

Shayne Fitz-Coy’s definition of Earn-out

An earn-out is deferred compensation tied to performance, and it has more going for it than its reputation suggests. It reduces the purchase price, it aligns incentives, and it gives a founder more upside.

It also reduces the equity a buyer has to put in. Structured well, every party wins.

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