Introduction

In M&A, an earn-out can be the bridge between a seller’s expectations and a buyer’s caution. It is not just a payment mechanism, it is a strategic tool that aligns interests and smooths the transition. But here is the catch: if poorly drafted, it can turn into a source of disputes and frustration. At dups, we make sure earn-outs work as intended, protecting value and building trust.

What is an earn-out and why is it used?

An earn-out defers part of the purchase price, making it conditional on the future performance of the target company. In practice, it is an additional payment to the seller if agreed objectives, such as revenue or EBITDA, are met. This structure reassures buyers while rewarding sellers for continued success.

Why do entrepreneurs and investors like it?

- Bridges valuation gaps: Sellers often have optimistic expectations, buyers are cautious. Earn-outs create a middle ground.

- Aligns interests: Sellers stay motivated to support the business post-closing.

- Reduces upfront risk: Buyers commit less cash initially, making deals easier to close.

When structured well, earn-outs create a win-win scenario. When structured poorly, they create conflict.

Advantages and disadvantages

Advantages:

- Facilitates agreement when valuation gaps exist.

- Encourages smooth transition and knowledge transfer.

- Can increase total deal value for sellers who deliver strong results.

Disadvantages:

- Creates complexity in drafting and monitoring.

- Risk of disputes over accounting adjustments or performance metrics.

- Can strain post-closing relationships if expectations are misaligned.

At dups, we help entrepreneurs weigh these pros and cons and decide if an earn-out fits their strategy

Why earn-outs are popular

- They bridge valuation gaps between optimistic sellers and cautious buyers.

- They align interests, motivating sellers to support the business post-closing.

- They reduce upfront risk, making deals easier to close.

When structured well, earn-outs create a win-win scenario. When structured poorly, they create conflict. Earn-outs influence behaviour after closing. Sellers remain involved, which can be positive for continuity but challenging if roles are unclear. Cultural alignment and trust are critical.

How to make it work

To avoid disputes and ensure clarity:

- Pick a clear, measurable metric such as EBITDA, EBIT, or revenue.

- Freeze accounting policies and define adjustments precisely to prevent manipulation.

- Set unambiguous calculation rules and duration so both sides know the terms.

- Provide seller access to monthly management accounts and agree a joint review calendar to validate results.

These steps turn an earn-out from a risk into a strategic advantage.

Common mistakes entrepreneurs make

- Vague definitions: “Profit” without specifying adjustments leads to conflict.

- Ignoring accounting policies: Buyers may change policies post-closing, impacting earn-out calculations.

- No governance: Without clear validation mechanisms, disputes escalate quickly.

These mistakes cost time, money, and trust. At dups, we anticipate these risks and draft clauses that leave no room for ambiguity.

Belgian market specifics

In Belgium, earn-outs are common in mid-market transactions. Periods frequently range over one to three years, most often tied to EBITDA or revenue metrics. Buyers expect robust definitions and clear governance. Our experience with Belgian investors and European funds means we know these norms and use them to structure deals that close smoothly.

Why it matters for entrepreneurs

Selling or buying a company is not just about price, it is about process. Earn-outs can secure the transaction and build trust, but only if drafted with precision. At dups, we combine financial and legal expertise under one roof to make sure every clause works for you, not against you.

Role of advisors

Why involve an advisor? Because earn-outs are simple in theory but complex in practice. Financial modelling, legal drafting, and negotiation strategy must work together. At Dups, we combine financial and legal expertise under one roof. We help entrepreneurs:

- Define realistic performance metrics.

- Draft calculation rules and governance clauses.

- Negotiate earn-outs that protect interests and avoid disputes.

Our boutique model means we work with a select number of deals per year, ensuring full attention and speed. With our network of Belgian investors and European funds, we help you negotiate from a position of strength.

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