Deal Structure · August 2026
Earnouts: The Fine Print That Decides What You Keep
An earnout sounds simple when a buyer first raises it: "we'll pay you the rest once the business hits its numbers." In practice, it's one of the most negotiated — and most disputed — pieces of paper in the entire deal.
Somewhere between 13% and 22% of middle-market deals include an earnout. In the smallest lower-middle-market deals, it's closer to one in three.
It's the mechanism buyers use to bridge a gap in trust, and trust gaps are exactly where deals get messy.
Why buyers ask for one
An earnout usually shows up when a buyer isn't fully convinced your numbers will hold up without you — new customer wins that haven't been tested, a growth rate they're not ready to underwrite for full price today, or a QoE finding they're not willing to simply take your word on. Instead of walking away or lowering the price outright, they offer to pay it later, contingent on the business proving itself.
What decides whether it works out for you
- What's actually measured. Revenue-based earnouts are far harder to manipulate than EBITDA-based ones, because a new owner has a hundred legitimate ways to make EBITDA look lower — reallocating overhead, changing how shared costs are billed — without doing anything obviously wrong.
- Who controls the business during the earnout period. If the buyer can restructure sales territories, change pricing, or fold your product line into a bigger one, they can influence the very number your payment depends on.
- How disputes get resolved. A named accounting firm and a defined process beats "we'll figure it out."
- How long the period runs. Shorter is generally safer for the seller — more time means more opportunity for the business, or the market, to move in a direction that isn't your fault but still costs you the payment.
The takeaway
An earnout isn't automatically a red flag — it's often what gets a deal done when buyer and seller genuinely see the business's near-term prospects differently. Read it as a second negotiation, not boilerplate. The clauses about control, metrics, and disputes usually matter more than the headline percentage everyone remembers from the term sheet.
