The earn-out clause is the specific contractual provision in an SPA defining the mechanics, conditions and governance of the earn-out arrangement. Its drafting is one of the most complex and contentious elements of M&A documentation: the precise definition of the performance metric, the permitted and excluded adjustments, the buyer's obligations not to frustrate earn-out achievement, and the dispute resolution mechanism for calculation disagreements all require meticulous attention. Poorly drafted earn-out clauses are a leading cause of post-closing M&A litigation.

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Example: an earn-out clause in the sale of a Swiss tech company specifies that EBITDA for earn-out purposes shall be calculated on a consistent accounting basis with the historical accounts, excluding all acquisition-related costs, integration costs and corporate overhead allocations not previously charged to the company — protections designed to prevent the buyer from reducing the earn-out through post-closing accounting decisions. A dispute resolution mechanism designates an independent accountant to resolve any disagreement within 30 days.

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Hectelion drafts and reviews earn-out clauses with particular attention to the governance and dispute resolution provisions that determine whether earn-out arrangements succeed or generate litigation.