M&A
Earn-Out
Definition
Deferred acquisition consideration payable only if the acquired business meets agreed performance targets after completion. It bridges a disagreement between buyer and seller about future value.
Why it matters
Earn-outs are common in gambling because so many targets are young, fast-growing and hard to value. A seller believes the growth continues and a buyer does not want to pay for it in advance, so part of the price is made contingent. It also keeps founders engaged through a transition.
The structure creates predictable friction. Targets are usually defined on revenue or EBITDA, which gives the seller an incentive to pursue short-term performance and the buyer an incentive to integrate in ways that depress the measure. Disputes over how the acquired business was run during the earn-out period are among the most common in acquisition litigation.
Headline deal values should be read with this in mind. A transaction announced at a large figure may involve a modest sum at completion with the balance deferred, which materially changes what the buyer has actually committed and what the seller is likely to receive.
The bottom line
An earn-out is a disagreement about value written into the contract. Read what is paid on day one before treating the headline number as the price.