Earn-out: Performance-related purchase price payment

An earn-out is an agreement in the context of company takeovers in which part of the purchase price is linked to the achievement of certain future performance targets of the acquired company. This contingent payment structure allows the buyer to minimise risk by making part of the purchase price dependent on the future performance of the company and offers the seller the opportunity to participate in future growth. Earn-outs are particularly common in the start-up world, where valuation is often based on growth potential and this arrangement can bridge the gap between buyers' and sellers' expectations.