Earn-outs that survive closing

An earn-out lets a buyer and seller agree on a price when they disagree about the future. The seller is paid more if the business performs; the buyer pays less if it does not. On paper, both sides are protected.

In practice, earn-outs are one of the most common sources of post-closing litigation. The disputes rarely turn on whether the target was hit. They turn on how the number was measured, and who controlled the business while it was being earned.

Define the metric with the accountants in the room

Revenue and EBITDA mean different things in different ledgers. Attach a worked example to the agreement, prepared on the seller’s historical policies, and state that those policies govern unless both sides agree otherwise.

Say what the buyer may and may not do

Sellers want operating covenants; buyers want freedom to run what they bought. A short, specific list works better than a general duty of good faith:

• Keep the business as a separate reporting unit for the earn-out period
• Do not move key customers or contracts to another group company
• Fund the agreed budget for sales and marketing

Agree how disagreements are resolved

Send accounting disputes to an independent accountant with a short timetable, and keep everything else for court or arbitration. Without that split, a disagreement about a single adjustment can become a full-scale lawsuit.

None of this removes the risk entirely. It does move the argument to the negotiating table, where it is cheaper to have.

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