An earn-out is a conditional price mechanism in an M&A SPA under which a portion of the acquisition price is paid to the seller only if the target achieves defined post-closing performance objectives — revenue, EBITDA, customer metrics or technology milestones. It bridges the valuation gap between an optimistic seller and a prudent buyer, while aligning seller interests with post-acquisition success. Precise drafting is critical: metric definitions, applicable accounting rules, buyer non-interference obligations and independent verification mechanisms must be exhaustively specified to prevent post-closing disputes — earn-out litigation is one of the most common post-M&A legal conflicts.

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Example: a Swiss SaaS company valued at CHF 15.0 million base (8x ARR of CHF 1.875 million) includes a CHF 5.0 million earn-out over 2 years: CHF 2.5 million if ARR reaches CHF 2.5 million in Year 1, CHF 2.5 million additional if ARR reaches CHF 3.2 million in Year 2. The earn-out present value (probability-weighted: 70% and 55%) is CHF 3.0 million — recognised as contingent consideration in the IFRS 3 PPA at the acquisition date.

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Hectelion structures and values earn-outs in all M&A transactions, and acts as expert in post-closing earn-out disputes where calculation methodologies are contested.