An earnout can help a founder and a buyer bridge a valuation gap by making part of the purchase price contingent on future performance. But agreement on the financial target leaves a harder question unresolved: how will the business be run while that target is being measured?
Two recent Delaware Court of Chancery decisions illustrate why the answer belongs in the acquisition agreement. In re Saama Technologies Litigation, decided September 28, 2026, and ACON Igloo Holdings, LLC v. Dometic Corporation, decided September 30, 2026, address disputes over efforts to achieve an earnout and the buyer’s response. For deal participants, the practical lesson is to negotiate the operating rules and calculation process with the same care as the headline payout.
Saama and the Limits of Pursuing an Earnout
Saama’s founder, Suresh Katta, sought a maximum $67.5 million earnout following a sale of control to an affiliate of The Carlyle Group. The agreement conditioned payment on a revenue threshold and tied the amount to qualifying software subscription bookings. The court found Katta engaged in contract manipulation that resulted in economically harmful commitments designed to achieve the targets. Saama failed to satisfy the required revenue threshold, and no earnout was due.1
The court separately rejected Katta’s challenge to the buyer’s good-faith objections. Under the particular objection provision, the inquiry was whether the buyer honestly believed its objections had factual and contractual support. Its financial interest in avoiding payment did not itself establish bad faith. 2
The court also awarded Saama $7,300,172.00, plus interest, for Katta’s breach of his fiduciary duty of loyalty as an officer. To drive earnout eligibility, Katta caused the company to enter into contracts with unprecedented discounts, free implementation services, and commitments to deliver products he knew the company could not support. Those arrangements burdened Saama with costly implementation obligations, diverted engineering resources, depressed subscription margins, and led to customer cancellations. The court found that Katta knowingly sacrificed the company’s interests to increase the sellers’ earnout payment, crossing the line between an aggressive business strategy and disloyal conduct.3
ACON and the Significance of Operating Covenants
In ACON, Dometic acquired Igloo with an EBITDA-based earnout. The agreement gave Dometic operating discretion subject to express restrictions, including ordinary-course operation consistent with past practices, reasonable authority for the CEO, reasonably necessary support, and a prohibition on specified intentional reductions or earnout avoidance.4
As the earnout target became increasingly difficult to reach, Igloo’s CEO, working with ACON, presented Dometic with two alternatives labeled “Deliver Earnout” and “Optimize Long Term Value.” The first contemplated unusual pricing and sales measures designed to boost year-end results at the expense of longer-term value. The CEO used those alternatives to pressure Dometic to renegotiate the earnout if it preferred to protect the business’s long-term economics. When Dometic insisted that Igloo continue operating consistently with past practices, the CEO abandoned a planned Walmart sales meeting and suspended promotions, acknowledging that the cancellations would hurt Igloo. The court rejected ACON’s characterization of these events as improper buyer interference, finding that the proposed measures fell outside ordinary-course operations and that management itself had chosen to cancel sales activities. The court rejected the implied-covenant claim because express provisions already addressed the challenged exercise of discretion.
What We’re Seeing in the Market
The issues illustrated by these decisions reflect a practical tension in earnout negotiations: buyers want flexibility to integrate and operate the acquired business, while sellers want a meaningful opportunity to receive the contingent purchase price. That tension deserves particular attention in software transactions, where choices about subscription pricing, implementation services and product development can affect both measured performance and the business’s future economics.
For founders evaluating an earnout proposal, the diligence should extend beyond whether the target appears achievable. The proposal should also be evaluated against the buyer’s integration plans, the resources available after closing and the accounting rules used to measure results. For buyers, the agreement should address how management’s incentives will interact with customer commitments and operating decisions. These are issues to resolve while negotiating the deal, before competing incentives become an operational dispute.
What to Negotiate before Signing
These fact-specific decisions do not give buyers an unrestricted right to suppress an earnout. The following drafting recommendations address practical risks and should be tailored to the transaction; neither opinion mandates these terms.
Specify the Buyer’s Obligations during the Measurement Period
A founder should identify the operational commitments needed to make the target achievable. If success depends on a sales team, product launch or development budget, address those dependencies expressly. An obligation to refrain from intentional avoidance addresses different conduct from an affirmative commitment to provide resources or pursue the earnout.
The parties should state whether the buyer must seek to maximize the earnout, use a defined efforts standard, or preserve specified operating conditions. If the buyer retains integration rights, negotiate their effect on the calculation. Consider revenue diverted to affiliates, changes in sales channels, discontinued products, and shared expenses. A seller expecting protection against these decisions should seek objective limits or agreed adjustments that do not depend exclusively on proving the buyer’s motive.
Define which Performance Counts
Build the calculation around the economic performance the parties actually intend to reward. For a subscription business, address bundled services, free implementation, discounts, cancellation rights, collectability and the distinction between signed bookings and recognized revenue. For an EBITDA earnout, specify treatment of intercompany charges, corporate overhead, integration costs and extraordinary gains.
Establish a clear hierarchy among transaction-specific accounting rules, historical practices and GAAP. Attach worked examples covering foreseeable disagreements. If margin requirements or limits on customer incentives matter, define their measurement and approval process. A vague reference to “typical margins” may invite a dispute over both the benchmark and the costs included.
Agree on Approvals for Unusual Measures
Discuss in advance whether management may use unusually deep discounts, accelerate shipments, offer extended payment terms, or undertake a sale-leaseback to improve measured results. Buyers should negotiate express approval rights for measures that create disproportionate costs or commitments beyond the earnout period.
Sellers should pair those rights with response deadlines and an agreed standard for withholding consent. Address whether approved exceptions count toward the earnout. Document the historical practices the parties intend to preserve so that “ordinary course” has a usable commercial reference point.
Give Sellers a Defined Channel for Information and Disputes
Provide periodic reporting, access to the records supporting the calculation and a process for raising concerns before the measurement period ends. Align those rights with confidentiality obligations and specify which seller representatives and advisers may receive information.
For the final calculation, set delivery and objection deadlines, require the basis and amount of disputed items, and address payment of undisputed amounts. Define the accounting expert’s jurisdiction and reserve legal questions, including alleged operating-covenant breaches, for the agreed judicial or arbitral forum. Also specify the relief available if an operating breach affects achievement of the target; an accounting adjustment alone may not resolve that harm.
Plan for Founders who Remain in Management
A founder’s continued involvement can help the business perform, but a personal earnout also creates competing incentives. Establish reporting lines, approval authority and a process for reviewing decisions in which management has a financial interest. Review the post-closing governing documents, employment arrangements and applicable duties together.
Consider appointing a sellers’ representative who is separate from operating management. If the founder serves in both roles, define how earnout advocacy and information requests will be handled. Clear procedures can reduce the risk that disagreements over purchase price become decisions that harm the business.
Operating During the Earnout Period
Founders who remain in management should translate the acquisition agreement’s operating provisions into clear procedures at the start of the earnout period. The should identify which decisions remain within management’s authority, which require buyer or board approval, and which historical practices provide the relevant benchmarks. Pricing policies, customary discounts, customer payment terms and product delivery commitments are useful starting points. An ordinary-course covenant can protect the seller against disruptive changes, but it can also limit management’s ability to introduce new measures to achieve the earnout.
Before undertaking an unusual sales campaign or customer arrangement, evaluate its economics over the full life of the commitment, including implementation costs, staffing demands and effects on future sales. Document the commercial rationale and compare the proposal with past practice. Where consent is required, obtain it through the agreed process before committing the company, and separately confirm how the arrangement will be treated in the earnout calculation. Approval to enter into a contract does not necessarily establish that its revenue qualifies for earnout credit.
If the buyer rejects a proposal or makes a decision that may impair the earnout, request a written explanation, identify the relevant contractual protection and promptly use the agreement’s consultation or dispute procedures. Continue managing the business responsibly while preserving the sellers’ contractual position. Suspending otherwise appropriate sales activities to pressure the buyer into renegotiating can harm the company and undermine the seller’s account of what prevented achievement of the earnout.
Key Takeaway
An earnout can bridge a valuation gap, but the value of that bargain depends on the rules governing the business after closing. Even a carefully drafted agreement cannot eliminate every opportunity for either side to influence the outcome through decisions about pricing, timing, spending or resource allocation. Conduct need not rise to the level of the fiduciary misconduct found in Saama to create tension or affect the payout; whether it breaches the agreement is a separate question. Founders should evaluate contingent consideration against the authority, resources and information they will actually have during the measurement period. Buyers should ensure that their operating discretion is compatible with the commitments they accept. Both sides should define what performance counts, who approves unusual measures and how disputes will be resolved.
The protections negotiated should also be proportionate to the economics of the deal. Particularly in smaller transactions, negotiating detailed earnout provisions can consume a substantial share of the legal budget without addressing every potential dispute or opportunity to influence the calculation. Sellers should weigh the potential payout against the costs of negotiating, monitoring and enforcing the earnout – and consider whether greater certainty in the consideration paid at closing would be more valuable. Addressing these questions early can help preserve the intended economics of the transaction while keeping the pursuit of contingent value commercially sensible.
Footnotes
1. In re Saama Technologies Litigation, C.A. No. 2022-1045-LWW (Del. Ch. Sept. 28, 2026), especially pp. 41–45, 64–65, 76–80 and 98–105.
2. Id. At 43-45
3. Id. at 80–92, 99, 105.
4. ACON Igloo Holdings, LLC v. Dometic Corporation, C.A. No. 2022-1057-LWW, slip op. at 7–8, 28–29 (Del. Ch. Sept. 30, 2026).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]