Earnout
Valuation & Pricing
Definition
An earnout is contingent consideration paid after closing if a business, asset, catalog, or project meets specified performance milestones.
Why it matters
Earnouts bridge buyer-seller valuation gaps, but they shift disputes from price to measurement, control, accounting definitions, and post-closing behavior.
Common misconceptions
- •The face value of an earnout is not the same as its expected present value.
- •Earnouts can reduce upfront risk while creating litigation risk later.
Technical details
Common Metrics
Earnouts may be based on revenue, EBITDA, net publisher share, production volume, regulatory approval, customer retention, or other defined milestones.
Diligence
Review calculation definitions, accounting policies, operating covenants, buyer discretion, audit rights, dispute procedures, caps, floors, and payment timing.