Thank you, Kirkland & Ellis, for your insightful analysis on earn-outs! Bottom line: Earn-outs are growing, and so is litigation – so focus on cash at close.
Here are a few highlights:
- Earn-outs are included in 37% of deals <$100M deal size
- Earn-outs are more prevalent than pre-COVID and are growing YoY
- The average earn-out size as a % of purchase price for sub-$50M deals is 47% (and it’s 31% for deals between $50-100M)
- This is higher than pre-COVID and is slowly trending upwards
- EBITDA triggers are the most common (34% of earn-outs)
- Other common triggers are revenue (20%) and “other” (27%) which includes ARR, margins, contract renewal, employee retention, etc.
- Only 21% of earn-outs paid out the maximum amount and overall, only 60% of earn-outs paid out partially or in-full
- Sellers contested 30% of earn-out payments, but only won 20% of those cases
Live in the PNW and have questions? Feel free to reach out to either of the Co-Founders: Ed Kirk or John O’Dore.
