The buyer is hesitant to pay our target multiple because our new AI-powered platform is still in its early deployment phase. How do we structure a non-financial, operational milestone earnout to bridge this valuation gap?

Question

Tyler Smith · Accepted Answer

When a buyer refuses to pay for future potential because it is not yet reflected in your historical EBITDA, a traditional financial earnout is the standard tool. However, if your growth depends on technology adoption, you should structure a non-financial, operational milestone earnout instead.

Rather than tying your payout to net income or revenue targets, which can be manipulated by post-close corporate overhead allocations, tie it directly to specific operational metrics. For example, you can set milestones based on the number of active users on your AI platform, the volume of automated transactions processed, or the percentage reduction in delivery times.

To make this work, the milestones must be objective, easily measured, and documented in the purchase agreement. Use your EOS® scorecard metrics as the foundation for these targets. Because your team is already accustomed to tracking these weekly numbers, you will have a clear, historical record to prove when a milestone is met.

Ensure the agreement clearly states that the buyer must provide the necessary technical infrastructure and marketing support to keep the platform running. By focusing on operational milestones, you protect your payout from accounting games and capture the true value of your technological innovation.