Earn-out structuring refers to the design of the contingent price mechanism in an acquisition transaction, whereby part of the purchase price is deferred and conditional on the target company meeting specified financial or operational targets over a defined post-closing period — typically 1 to 3 years. A well-structured earn-out bridges the valuation gap between seller and acquirer, but a poorly designed one creates conflicts, litigation and management distraction.

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The key structuring decisions in an earn-out include: the metric (EBITDA, revenue, EBIT, specific KPIs — each with different manipulation risks), the measurement period (annual milestones vs cumulative target), the payment formula (linear, binary or capped), the governance protections (seller's right to manage the business during the earn-out period, restrictions on acquirer actions affecting performance) and the accounting definitions (which costs are included or excluded from the earn-out EBITDA).

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Earn-out disputes are extremely common in M&A litigation — particularly when the acquirer's post-closing management decisions structurally affect the earn-out metric. French and Swiss courts have extensively litigated earn-out disagreements. Key protections for the seller include: explicit "best efforts" or "minimum investment" obligations on the acquirer, an independent accountant determination mechanism in case of dispute, and clear definitions of the earn-out EBITDA in the SPA.

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Example: a Franco-Swiss services company is sold for CHF 10.0 million base price (6x normalised EBITDA of CHF 1.67M) plus an earn-out of up to CHF 2.5 million if cumulative EBITDA over years 1–2 post-closing exceeds CHF 4.0 million. The earn-out is linear between CHF 3.5M and CHF 4.0M thresholds. The seller retains operational independence for the earn-out period — a critical protection against acquirer interference.

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At Hectelion, we design earn-out mechanisms that are fair, measurable and litigation-resistant, balancing the interests of sellers and acquirers in Franco-Swiss transactions.