An arrangement where at least part of the purchase price of a business is calculated by reference to the future performance of the business being purchased. An earn-out is typically structured as one or more contingent payments after the closing which are payable on the satisfaction of certain milestones (such as future sales targets). An earn-out can be used as an incentive for management where the prior owner continues to manage the business following the sale.

For a discussion of earn-outs, see Practice Note, Earn-outs.