My approach is to first build own independent view about the future.... dig in to understand the root causes of the recent drop and assess possibility to reverse the slide.

If the above gives me confidence, then I'd value at TTM and earn out on top, as you are thinking and Ali suggests above. If the timing of the recovery uncertain, I'd try to negotiate a lower guaranteed payment and a higher contingent/earn out.

But ultimately, building independent view on future is important for me.

The answer to this really depends on what the driver of the growth was leading to record revenues and then what triggered the decline. If the sellers rode a wave of one time fortune (entirely possible), it doesn’t mean it’s a bad business it just means you don’t want to pay off of the peak. If you’ll have to rebuild the growth of revenue to regain that high I also would advise against an earn out structure. The answers to these types of questions are so heavily dependent on the facts and circumstances. I’d suggest you have you’re advisors familiar with the deal provide you with the relevant advise. Getting hypothetical suggestions from here can be helpful but also misleading, given their not anchored in full context of the deal.