M&A Foundations · glossary
Extra consideration paid after completion only if the business hits agreed targets — revenue, profit, client retention. It bridges a valuation gap, but is notoriously dispute-prone: the seller is being measured on a business it no longer controls. Chapter 9
Explained in Chapter 9, Price Mechanisms and Adjustments, of M&A Foundations.
Sometimes the gap is not between two balance sheet dates but between two views of the future. The seller says the business will double; the buyer will not pay today for growth it cannot see. An earn-out bridges the valuation gap by splitting the price: a fixed amount at completion, plus further payments contingent on the target's performance over a measurement period. The period is typically one to three years, and the further payments are almost always subject to a cap.Read Chapter 9, Price Mechanisms and Adjustments →
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