How Long Does an Earnout Last? What to Negotiate

How long does an earnout last?

Most earnouts last between one and three years. The median performance period outside life sciences is 24 months. Longer periods exist, but they are the exception for business services companies.

Cantrell Law, a business law firm, says “most earnouts last between one and three years.” The Harvard Law School Forum on Corporate Governance published a July 2025 post by the law firm A&O Shearman. It reports that “the median length for the earn-out performance period for transactions outside the life sciences sector is 24 months.” Life sciences deals run 3 to 5 years or more because approvals take time. Those deals are not a fair guide for a services company.

What is an earnout, and why do buyers ask for one?

An earnout is part of the purchase price paid after closing, and only if the business meets agreed targets. Buyers use it when they and the seller disagree on what the business will earn.

Cantrell Law says it lets a seller “capture upside if the company hits its numbers” and protects the buyer from overpaying. Altair Advisers adds that private equity deals “usually include a third component” beyond cash and rollover equity, which is earnout payments. Our earnouts guide and the glossary entry for earnout cover the basics.

How big is a typical earnout?

Size varies, so look at the share of the price at risk. The Harvard Forum post reports that the median earnout outside life sciences was 31% of closing payments in 2024.

That figure includes escrowed amounts. It came in at 34% in 2023 and 30% in 2022. A larger earnout means more of your price depends on what the buyer does after closing. Compare offers by counting the earnout as uncertain money, not as cash. A lower price with more cash at closing can be worth more than a higher price that depends on targets.

What should you negotiate besides the length?

Length is one term of several. The metric, the buyer’s control over the business and the payout rules matter as much as the number of months, so negotiate them together as one package.

Cantrell Law says to accept an earnout only when the metric is one the buyer cannot easily manipulate and the period is short. Name the exact metric, not just “EBITDA,” and spell out what counts.

Why do earnouts cause so many disputes?

Earnouts cause disputes because the buyer controls the business while you are paid on its results. Targets can feel just out of reach, and each side reads the numbers differently.

Altair Advisers says in its experience “the metrics and timeframes often seem to be just out of reach and are the source of many post-transaction conflicts.” Cantrell Law adds that a contested claim “can cost both sides hundreds of thousands of dollars in legal and accounting fees, and can take years to resolve.” The best protection is precise drafting before closing. Altair offers a blunt test: if the price does not make sense without the earnout, the deal does not make sense.

What happens if the buyer sells or merges the company?

The contract decides what happens to your earnout if the buyer resells or merges the company. If the agreement is silent, expect a fight, so ask your lawyer to address a resale in the agreement.

Cantrell Law says most agreements pick one of three paths: acceleration, assumption or a buyout. In acceleration, the full earnout becomes due at once. In assumption, the new buyer takes over the obligation. In a buyout, the original buyer pays an agreed lump sum. Sellers usually prefer acceleration. Cantrell Law also flags integration as a risk. If the buyer folds your company into its own on day one, separating the results becomes hard. Our post on the first 100 days after selling to private equity shows how fast reporting and systems change.

How do earnouts connect to the rest of the deal?

Cash, rolled equity and an earnout make up the typical offer. Compare all three. The glossary defines earnout, rollover equity and escrow. Our post on rollover equity covers the second piece. The letter of intent guide shows where these terms first appear. For a view of the whole sale, see how to sell your business to private equity.

Capstreet has not published a standard earnout term, and this post does not state one. Ask any buyer for its earnout terms in writing before you sign. Tax and legal treatment varies, so ask your own adviser to review the language.

Next step

If you are weighing a sale and want to talk through structure, start with our deal criteria. Then reach us in confidence at /contact, at 713-332-2700 or at connect@capstreet.com.