Buyers and sellers agree an earn-out when they cannot agree a price. The seller believes in the business's future; the buyer wants to pay for it only if it arrives. The earn-out defers the disagreement, and in our litigation practice we see how often it returns.
Define the metric as the accountants will calculate it
Revenue and EBITDA mean different things in different ledgers. The agreement should specify the accounting principles, the treatment of integration costs, transfer pricing and one-off items, and include a worked example.
Say how the buyer may run the business
Most disputes are not about arithmetic but about operating decisions after closing. Parties should decide whether the buyer must use a particular level of effort, whether specific actions are prohibited, and what happens if the business is sold or reorganised during the earn-out period.
Choose the forum before you need it
- An independent accountant for calculation disputes, with a defined scope
- Courts or arbitration for disputes about conduct and interpretation
- Clear timetables for statements, objections and information access
The time to decide how an earn-out dispute will be resolved is when both sides still hope it will never happen.
This publication is general information, not legal advice. It may not reflect later developments. Contact a lawyer about your circumstances.