Earnout
An earnout is the part of the purchase price that is paid later, if agreed earnings or revenue targets are met after closing.
An earnout closes a gap when the seller sees more in the next few years than the buyer will underwrite. One to three years is usual, with the metric, the arithmetic and the thresholds written down. They are common in DACH mid-market deals, and they often end in a fight: if the metric is loose, the argument starts after closing. A headline value that assumes the earnout is paid in full is rarely what the seller actually receives.
Example
Fixed purchase price at closing 4.5 million EUR. Earnout 1.5 million EUR over three years, 0.5 million EUR per year on hitting 10 percent EBITDA growth p.a. Total value at full achievement 6.0 million EUR; actually paid, on average 5.0 to 5.5 million EUR.