Business Earnout Value Calculator

Earnout structure in M&A: What is an earnout: contingent payment tied to future performance of acquired business; allows buyer and seller to bridge valuation gap; Common earnout metrics: revenue targets (easiest to measure): "additional $2M if revenue hits $10M in Year 1"; EBITDA targets (aligns incentives): "25% of EBITDA above $3M for 3 years"; customer retention: "$1M if 90% of customers retained 12 months post-close"; product milestones: pharma/biotech common — "$5M on FDA approval"; Typical earnout terms: 1-3 year measurement period; 15-30% of deal value in earnout; paid annually or at measurement date; dispute resolution: escrow often used; Earnout disputes: very common — ~60% of earnouts involve disputes; buyer controls business post-close — easy to manipulate EBITDA; key protections: earnout definitions in purchase agreement must be detailed; GAAP consistency covenants; buyer obligation to run business for earnout purpose; independent accountant dispute resolution.

Earnout benchmarks by industry: Technology/SaaS: 15-25% of deal value in earnout; metrics: ARR growth, churn rate, NRR; Healthcare/pharma: 20-40% — clinical milestones common; Business services: 10-20% — revenue or EBITDA; Consumer goods: 10-15% — revenue targets; Professional services: 15-25% — key employee retention + revenue; Earnout success rate: only 40-50% of earnouts result in full payment; partial payment: ~25%; zero payment: ~25-35%; Structuring to maximize collection: negotiate monthly/quarterly measurement (vs. annual, harder to manipulate); earn in trapezoidal curves (partial payments below full target); define EBITDA explicitly in agreement — specify add-backs, allocations; get buyer obligations in writing (marketing spend minimums, no layoffs); personal guarantee from acquirer principals; Include key-man provisions — if seller leaves, earnout accelerates.

Family offices (single or multi) make sense at $50M+ in investable assets. Below that, private banking (JP Morgan Private Bank, Goldman Sachs PWM, UBS) offers similar services with lower minimums ($5-25M). Family offices provide consolidated reporting, direct deal access, and custom investment mandates unavailable at private banks. Multi-family offices (Bessemer Trust, Glenmede) offer a middle ground at $10M+ with family-office-level service at lower cost.

Most wealth advisors recommend 3-5% of liquid net worth in cash/cash equivalents for UHNW individuals — enough to cover 12-24 months of lifestyle expenses plus opportunistic investments. Excess cash above this benchmark costs 5-8% annually in opportunity cost vs. diversified portfolios. Treasury bills, money market funds, and short-duration bonds provide liquidity with yield while maintaining capital preservation objectives.