After the deal has closed, the seller may be entitled to an “earn-out,” or a portion of the purchase price contingent on the target company meeting certain financial or non-financial benchmarks within a certain time frame.

Earn-outs are becoming more common in contracts as a result of the COVID-19 pandemic’s impact on predictability. 

Earn-outs help negotiate a fair acquisition price by linking it to the success of the business during a transition period following a sale.

If the earn-out is structured properly, the buyer will get what it paid for and the seller will get a greater purchase price based on the target’s expected growth.

Particularly in today’s recovering economy, a well-drafted earn-out can be a key item for closing a contract that might otherwise be doomed on arrival without it.

Need assistance in acquiring a business? Get in touch with me, and I’d be happy to assist you.