An earn-out is used to bridge differences in value expectations between buyer and seller. The definition of the targets (for example EBITDA), the calculation method and post-closing management control must be clearly set out in the agreement. In financial reporting, it is measured at fair value as contingent consideration.
Related terms
Share purchase agreement (SPA)The agreement governing the price, payment terms, representations and warranties, indemnities and closing conditions in a share transfer.EBITDAEarnings before interest, tax, depreciation and amortisation; used as an indicator of the cash-like profitability generated by a company's core operations.Business combinationA transaction or event in which an acquirer obtains control of one or more businesses.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.Discounted cash flow (DCF)A valuation method based on discounting the free cash flows an asset or company will generate in the future to the present using an appropriate discount rate.
Last updated: October 22, 2026 · This definition is for general information only.