The buyer's offer includes a thirty percent earnout tied to cross-selling our software to their existing customer base, but they are merging our sales team into their enterprise division. How do we structure the post-close operational covenants to ensure their sales reps actually pitch our product instead of letting our earnout die on the vine?

Question

Tyler Smith · Accepted Answer

An earnout tied to cross-selling is highly risky when you lose control of the sales engine. If the buyer merges your sales team into theirs, your product will compete for attention against their legacy offerings. To secure this earnout, you must negotiate strict operational covenants that dictate how the combined sales team is trained, incentivized, and monitored. First, require the buyer to implement a specific commission structure that pays their existing sales reps a premium for selling your software. If there is no financial incentive for them, they will default to selling what they know. Second, establish dedicated sales Rocks for the combined division. These Rocks must be tracked weekly on a shared Scorecard during integration meetings. If the buyer fails to hit specific marketing and outreach activity metrics, that failure must contractually trigger a partial payout of your earnout, regardless of final sales numbers. Third, retain operational veto power over changes to your product development and delivery teams. If the buyer starves your technical team of resources, your product quality will slip, making it impossible for the sales team to close deals. We use the GWC framework to evaluate the buyer's leadership team during due diligence. If they do not truly understand, want, and have the capacity to drive this cross-selling initiative, do not accept the earnout. Force them to pay a higher fixed amount at close or walk away from the deal.