The buyer wants to base our earnout on post-close EBITDA, but they are planning to centralize our back-office functions into their shared services platform. How do we structure the deal to prevent their corporate overhead allocations from artificially depressing our earnout payments?

Question

Tyler Smith · Accepted Answer

If a buyer consolidates your administrative operations into their shared services platform, your post-close operating expenses become a target for corporate overhead allocations. To protect your earnout, you must negotiate a strict definition of EBITDA in the purchase agreement that specifically excludes any allocated parent company overhead.

We recommend pushing for a gross profit earnout instead of an EBITDA-based earnout, as it is much harder for a buyer to manipulate. If the buyer insists on EBITDA, you must negotiate a pre-determined, fixed cap on SG&A expenses or establish a deemed operating expense model. This means your post-close entity is charged a flat, agreed-upon percentage for shared services like human resources, IT, and legal, regardless of what the buyer actually spends.

You should also include a clause stating that no corporate overhead can be allocated to your business unless it directly increases your revenue and is approved by your former leadership team. Use your current Accountability Chart to define who retains operational veto power over these expenses during the earnout period. This ensures that the systems you built are not bogged down by corporate bureaucracy that eats away at your final payout. Keep these metrics visible on your weekly Scorecard so you can track performance against the earnout targets in real time.