An earn-out is a deferred and conditional price supplement whereby an additional payment is made to the seller if the acquired business achieves pre-agreed performance targets over a defined post-closing period (typically 1–3 years). It is used to bridge the valuation gap between buyer and seller when future performance is uncertain — the seller receives upside if their projections prove correct, the buyer gains downside protection if they do not. Its structure must be precisely defined in the SPA: performance indicators, calculation formula, permitted adjustments, post-closing governance and cooperation obligations.

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Example: in the sale of a Swiss advisory firm at a base price of CHF 14.0 million, a CHF 4.0 million earn-out is structured over two years: CHF 2.0 million if EBITDA exceeds CHF 2.5 million in year 1, CHF 2.0 million additional if EBITDA exceeds CHF 3.0 million in year 2. The SPA defines governance rules and financial reporting obligations precisely to prevent opportunistic behaviour by the buyer during the earn-out period.

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At Hectelion, we structure and model earn-outs to effectively bridge valuation gaps without creating the conditions for post-closing disputes.