Earnout

DefinitionAn earnout is a portion of the purchase price paid only if the business hits agreed performance targets after closing. It lets a buyer and seller who disagree on value both get what they want — the seller captures upside if the business performs, the buyer avoids overpaying if it doesn’t. Earnouts bridge valuation gaps, but they are also a frequent source of post-closing disputes, so the metrics, the measurement period, and who controls the business in the meantime all have to be defined precisely.