Earnout
An earnout is a contingent part of the agreed acquisition consideration. Payment depends on the business meeting specified targets after the acquisition.
An earnout can address different expectations about future performance. Part of the consideration is paid only if agreed targets, such as revenue or EBITDA, are achieved. The agreement must clearly define the measures, calculation, period, and each party’s ability to influence the outcome.
Example
EUR 4.5 million is paid at closing. A further EUR 0.5 million may be paid in each of the next three years if the agreed annual EBITDA growth target of 10% is met. Full achievement gives total consideration of EUR 6.0 million. The actual amount cannot be determined without knowing subsequent performance.
An earnout is a contingent part of the agreed acquisition consideration. Payment depends on the business meeting specified targets after the acquisition.