Thompson Coburn partner Nathan Viehl wrote a new article in IFLR discussing the dual nature of earnouts in private equity transactions. While acknowledging their value in bridging valuation gaps, Nathan highlights how earnouts can also spark disputes that diminish deal value and harm crucial business relationships.
"The PE landscape in 2025 continues to navigate significant headwinds amid persistent macroeconomic uncertainty," he wrote. "Rising interest rates have fundamentally altered deal structures and valuations, while inflation concerns have complicated financial projections and performance metrics."
Nathan attributes the rise of earnouts to the current economic climate. "As a result of this challenging environment, earnouts have become an increasingly common feature of mergers and acquisitions transactions in recent years, particularly in PE deals where platform companies are acquiring smaller businesses as add-ons."
He also outlined proactive strategies to prevent earnout disputes. These include drafting clear and detailed earnout provisions, aligning expectations and governance, harmonizing earnout and employment terms, and documenting key decisions and performance.
Click here to read the full article (registration required).
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.
