Earnout
Will I actually get the earnout?
Favours the drafting party
What it does
Defers a portion of consideration and conditions it on post-closing performance, bridging a disagreement about what the business is worth.
Why it matters
The buyer controls the business during the measurement period, and the metric is measured on their books. Most earnout disputes are not about bad faith; they are about a metric that was never defined tightly enough to survive the buyer running the company their way.
What to watch for
- Metrics based on net income or EBITDA, which the buyer's allocations and overhead can move
- No covenant to operate the business consistently with past practice
- The buyer free to reorganise, merge or reallocate the business during the period
- Set-off rights letting indemnity claims be netted against the earnout
- No right to inspect the calculation or the underlying records
What to ask for
- Revenue or another metric that is hard to manipulate, rather than a profit measure
- An express covenant to operate in the ordinary course and not to act to reduce the earnout
- Defined accounting treatment, with named exclusions for buyer overhead and allocations
- Audit and inspection rights, with a dispute mechanism naming an independent accountant
- Acceleration on a sale, or on removal of the seller from the business
What agreements actually say
Maximum earnout payable
Measured, but not one number. Measured across 35 agreements from 34 filers, which clears the threshold. This is an absolute dollar amount measured across deals of very different sizes, so a median across them compares things that are not comparable. A $25m ceiling on a small acquisition and on a large one are different facts. The figure worth publishing is the ceiling as a percentage of the consideration, which needs the deal size and is not yet extracted.
How to read this. These describe agreements that USE THIS PARTICULAR LANGUAGE and are filed with the SEC. They are not a random sample of deals, and EDGAR is public companies only. Read as 'among agreements using this formula, the median is N' — never as 'the median deal'. Window: 2016-01-01 to 2025-12-31. Method: For each metric an exact formulaic phrase selects documents that contain the provision, and a deterministic regex anchored on that phrase extracts the value. No model is involved, and every observation behind a published figure is retained with its matched text and source URL so any number here can be checked or falsified.
How common is it
Documents filed with the SEC containing the exact phrase “earnout”.
View as a table
| Year | Documents |
|---|---|
| 2019 | 3,365 |
| 2020 | 4,465 |
| 2021 | 8,423 |
| 2022 | 8,610 |
| 2023 | 9,561 |
| 2024 | 8,954 |
| 2025 | 7,999 |
Real filings using it
- Keyarch Acquisition Corp (CIK 0001865701) — 425, 2024-03-11
- HCYC Holding Co (CIK 0002006779) — F-4, 2025-10-23
- Above Food Ingredients Inc. (ABVE, ABVEW) (CIK 0001979484) — 20-F, 2024-07-08
Source: SEC EDGAR full-text search (efts.sec.gov). Retrieved 2026-08-30. Counts are filed documents matching an exact phrase, not deals, and EDGAR indexes public-company filings — read these as public-company practice, not as evidence of what private mid-market agreements contain.
What usually gets agreed
A revenue-based metric with defined exclusions and an accountant-referral dispute mechanism is a common compromise. An anti-frustration covenant is usually obtainable; an outright acceleration right is not.
Related
- Indemnity cap and basket — The floor a claim must clear before the buyer can recover, and the ceiling on total recovery.
- Seller non-compete — A restriction on the seller competing with, or soliciting from, the business they sold.