The buyer wants a three-year earnout tied to topline revenue, but there is no language protecting us if they sell the company or fire me as division president during year two. How do we structure acceleration and buyout triggers in the earnout agreement?

Question

Tyler Smith · Accepted Answer

If a buyer terminates you without cause or flips the company before the earnout window closes, an unhedged earnout evaporates. You must insist on automatic acceleration covenants in the definitive purchase agreement.

Define two non-negotiable acceleration triggers. First is a change of control. If the buyer sells more than fifty percent of company voting power, merges with another entity, or sells substantially all operating assets during the earnout period, the entire maximum earnout must become immediately due and payable in cash at the closing of that transaction. Do not agree to prorated calculations based on elapsed time. A secondary sale proves the buyer realized the value of your platform.

Second is constructive termination or termination without cause. If you agree to remain in an operating seat on the Accountability Chart post-close, tie your employment agreement directly to the purchase agreement. If the buyer terminates your employment without cause, demotes your title, slashes your operational budget, or materially alters your decision-making authority over the earnout revenue drivers, the full earnout must immediately accelerate.

Include operational covenants requiring the buyer to operate the business in the ordinary course. This prevents them from diverting sales leads to sister companies, changing credit terms to suppress bookings, or starving the marketing budget agreed upon during closing.