Earn-out (definition)
Deal consideration paid only if post-closing metrics hit; contingent by design and controlled by definitions in the purchase agreement.
An earn-out is the portion of sale consideration paid only if the business hits agreed metrics after closing: revenue, EBITDA, retention, or production targets measured over one to three years.
The economics live in the definitions. What counts toward the metric, who controls the inputs after closing, how shared platform costs are allocated, and what happens on early termination or a resale of the platform are all negotiated terms. A seller who no longer controls hiring, pricing, or carrier strategy is betting on a machine someone else operates.
Earn-outs bridge valuation gaps and they also transfer risk. Pricing that risk honestly, rather than treating the earn-out as guaranteed, is the start of structure literacy.