An earnout is a contingent acquisition payment tied to the acquired company hitting post-close milestones over a defined performance period, typically 1 to 3 years. Milestones cover revenue, EBITDA, product launches, customer-retention thresholds, or other operating metrics, and the structure is used to bridge valuation gaps between buyer and seller when the buyer doesn't want to pay up front for value that depends on future performance. It is one of the most-negotiated and least-loved acquisition mechanics, because it transfers performance risk from buyer to seller and gives the seller limited control over the metrics they're now paid to hit.
The typical structure: an earnout represents 10 to 40 percent of total deal value (sometim...