A strategic buyer is offering a low base multiple but claims we can double our payout through post-close cross-selling synergies. How do we structure a double-trigger earnout to protect our payout if they fail to integrate us properly?

Question

Tyler Smith · Accepted Answer

Strategic buyers love to sell you on the dream of post-close synergies, but they rarely want to pay for them upfront. If you agree to an earnout based on cross-selling, you are taking all the integration risk. If their sales team fails to pitch your product, or if their internal systems crash, your payout disappears. To protect yourself, structure a double-trigger earnout. This means your payout is not tied to a single, easily manipulated metric like post-close net income. Instead, the earnout is triggered by either meeting a specific revenue target or by the buyer failing to provide agreed-upon marketing and sales support. If they fail to dedicate the promised resources, the earnout should automatically pay out in full. You must also define your earnout targets using gross revenue or gross profit rather than net income. Buyers can easily hide profits through corporate overhead allocations, shared service fees, and management charges. Finally, include a covenant that requires the buyer to run your division as a stand-alone operation with separate accounting records until the earnout period is over. This prevents them from muddying your financial performance and ensures you actually collect the premium multiple they promised during negotiations.