Glossary · Valuation and finance
Earn-out
Also called earnout
Definition
An earn-out is a part of the purchase price paid after closing, only if the business reaches agreed targets such as revenue or EBITDA. It bridges a gap when buyer and seller disagree on value. Disputes often follow, about how the targets were measured and how the buyer ran the business.
Related terms
EBITDA Earnings before interest, tax, depreciation and amortisation: the profit figure most deals are priced on. Escrow Money held back from the price by a third party, released later if no claims are made. Locked box A way of fixing the price on a past balance sheet date, with no adjustment after closing. Completion accounts Accounts drawn up at closing to adjust the price for the actual cash, debt and working capital on that day. Leveraged buyout An acquisition paid for largely with borrowed money, secured on the target company itself. Net working capital Current assets minus current liabilities: the cash tied up in running the business day to day. Quality of earnings An accountant's report on how much of a company's profit is real, recurring and likely to last.