Arcvue
M&A—the part of the price that is not paid yet
When the buyer and seller cannot agree on the number, they agree on a test instead.
An earnout is purchase price the seller receives later, contingent on the business hitting agreed targets after closing. It bridges a valuation gap by making one side's forecast the thing that has to come true. Arcvue prices it at every threshold the seller might negotiate you to, against every performance level that is plausible, before you agree to one.
Thirty million now, and up to ten million if the forecast was right.
Basis a worked bridge at illustrative values. Synthetic sample. The seller receives 40,000,000.00 if they were right, and the buyer pays it only once performance has proved it.
Three reasons, and only one of them is about price.
- Bridging the valuation gap. Each side is paid according to whose forecast turns out to be true, rather than whose negotiating position was stronger.
- Retaining the people. When the earnout depends on performance, the founder has a financial reason to stay and keep the business running.
- Pricing a pending risk. With a major recompete outstanding, a buyer does not want to pay full price until it is re-won.
An earnout measured on a figure the buyer controls after closing—allocated overhead, shared services, transfer pricing—is a dispute waiting to happen. The measure has to be one the seller can still influence and both can compute.
Modeled with the deal, not bolted on after it.
M&A carries earnout structures through the returns model, so the contingent portion is visible in the equity outcome rather than treated as an afterthought.