Earn-out

An earn-out splits the purchase price into a fixed amount paid at closing and a variable amount payable only after a defined period (typically 1–3 years) based on pre-agreed metrics — revenue, EBITDA, customer retention, milestones. It bridges a valuation gap when buyer and seller assess future earnings power differently: the seller gets a shot at a higher total price if their more optimistic projections materialise; the buyer only pays the uncertain portion once it has actually materialised.

In distressed deals, earn-outs are especially relevant because reliable historical numbers are often missing — the data room is incomplete, planning reliability is low. An earn-out lets a deal close anyway without forcing the buyer to price in the full earnings risk upfront. For the selling administrator, however, an earn-out warrants caution: it ties the estate to an uncertain future payment and sits uneasily with the principle of expeditious proceedings — in practice it is more common in share deals under an insolvency plan or in sales out of self-administration than in a classic asset deal out of standard insolvency.

The mechanics are prone to dispute: how the metric is defined, the seller's control rights over the buyer's management of the business during the earn-out period (anti-dilution protection), and the payment triggers. An unclear earn-out clause is one of the most common post-closing dispute sources in M&A transactions.