We are agreeing to an EBITDA-based earnout, but the buyer intends to integrate our HR, legal, and accounting into their shared services immediately. How do we prevent their corporate overhead allocations from artificially depressing our earnout EBITDA?

Question

Tyler Smith · Accepted Answer

To protect your earnout from parent company overhead allocations, you must negotiate a precise definition of EBITDA in your purchase agreement. Standard accounting definitions are not enough. You must explicitly state that the earnout EBITDA will be calculated on a standalone basis, completely excluding any parent company corporate overhead, management fees, shared service allocations, or integrated SG&A expenses.

Negotiate the right to run a shadow P&L that mimics your historical operating structure. If the buyer integrates your HR or accounting, the contract should stipulate that these services are charged to your unit at historical run-rates or a pre-agreed flat fee, rather than a percentage of your revenue.

Maintain clear operational boundaries. Use your EOS Accountability Chart post-closing to keep lines of authority clear. Ensure your remaining team members know exactly who GWC, or Gets, Wants, and has the Capacity to do, each job. This prevents the buyer from bloating your local organization with expensive corporate personnel whose costs would otherwise depress your earnout calculations. The goal is to keep your operating metrics clean, verifiable, and insulated from parent company financial engineering.