What are the most popular earn-out formulations in an SPA?

intermediary profile

June 30, 2025

by an intermediary from Fachhochschule Salzburg in Innsbruck, Österreich

What are in your opinion the most popular earn-out formulations in an SPA? How did they work in practice after the deal?
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Reply by an intermediary
from Rochester Institute of Technology in Toronto, ON, Canada
From the standpoint of the seller, revenue is the only one that is potentially palatable. Everything else, they would be concerned that can be easily manipulated.
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Reply by a searcher
from University of Southern California in Irvine, CA, USA
Bottom line earnings and EBITDA are often too discretionary and possible for a new owner to manipulate by adding expenses or investing in growth, believe it’s generally best to keep earn outs higher up the P&L and base it off gross profit, or a key sales metric like units sold, customers retained, etc. where you can still track that the business is performing and both the buyer and seller are more aligned
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