How to negotiate an earn-out without destroying the buyer-seller relationship

How to negotiate an earn-out without destroying the buyer-seller relationship

Negotiating an earn-out is probably one of the most delicate exercises in a business acquisition. For the buyer, it is a way to protect themselves if the business underperforms. For the seller, it is the mechanism that ensures they are compensated for the real potential of what they have built.

The challenge lies in the fact that both interests, although legitimate, tend to pull in opposite directions. That is why a poorly designed earn-out can damage the relationship between the parties just a few weeks after closing. The key is to structure it in a way that is technically solid but also emotionally sustainable.

Where the conflict comes from

Problems in an earn-out rarely arise from the mechanism itself, but rather from what happens after the closing. The buyer naturally wants to manage the company according to their own criteria and integration strategy. The seller, meanwhile, fears that these changes may end up affecting the objectives that determine their future payment.

Between the two, a silent suspicion often emerges: the feeling that the other party might influence the earn-out results to their own benefit.

If this mistrust is not addressed and neutralised during the negotiation, it returns later in a magnified form, turning any management decision into a potential trigger for conflict.

How to structure an earn-out that builds trust

An earn-out only works if it is based on objectives that both parties can understand immediately and that do not require complex accounting interpretations. The first step is choosing clear, simple and verifiable metrics: net revenue, EBITDA or very specific operational indicators. When a formula needs additional explanation to be understood, it stops being a good target for an earn-out.

It is also essential to agree from the outset on how the company will be managed during the earn-out period. The buyer must retain their ability to make strategic decisions, but the seller needs reassurance that those changes will not artificially alter the results on which their future compensation depends.

The key is not to restrict the buyer, but to establish a shared framework: which decisions could materially affect the business, how these decisions will be communicated, and what level of predictability each party commits to maintain. Once this is set out clearly, the common fear that the rules of the game might suddenly change disappears.

Transparency is another fundamental pillar. The seller should not act as a shadow auditor, but they do need reasonable visibility over the evolution of the business and the progress toward the agreed objectives. Periodic reports, follow-up meetings and a clear channel for raising questions help avoid friction and reduce the suspicions that tend to arise when information is delivered late or only partially.

It is equally important to anticipate how technical discrepancies will be resolved. Experience shows that differences in the interpretation of the data almost always occur, so it is wise to agree in advance who will have the final say and through which procedure. Involving an independent expert provides neutrality and prevents a technical discussion from eroding the personal relationship between the parties.

Earn-out targets must also be realistic. When objectives are excessively ambitious or disconnected from the historical performance of the business, the result is frustration and a sense of unfairness. A sound earn-out is built on credible figures, aligned with the expected evolution of the business after the acquisition and designed to allow gradual fulfilment, not an “all-or-nothing” approach that only generates tension.

Finally, when the seller remains in the company during the earn-out period, aligning incentives is essential. The earn-out cannot be their only motivation. It is far healthier to combine it with a bonus scheme, clear recognition within the organisation or a well-defined role during the transition. When both parties feel they are moving toward a shared goal, every management decision becomes a step forward rather than a perceived threat.

Most secure business transaction

A well-structured earn-out not only reduces the risk of post-acquisition conflict, it also becomes a mechanism that reinforces trust between buyer and seller and allows the transition of the business to unfold in a more stable and predictable way. Its effectiveness does not depend on adding endless clauses or creating an excessive control framework, but on building an agreement centred on clear objectives, accessible information and a management system that both parties perceive as balanced.

When there is transparency and a neutral procedure to resolve questions or technical discrepancies, the earn-out stops being a defensive tool and becomes a bridge between the seller’s expectations and the buyer’s vision. Ultimately, its value lies precisely in that: aligning interests and preserving the relationship between people who, for a period of time, will continue to share responsibility for the future of the business.

If you are considering a transaction and want the earn-out to be a help rather than a headache, we can assist you in shaping it carefully and thoughtfully so both parties can feel at ease from day one.