Private Equity Glossary

Earn out

A provision which used to be commonplace but is now increasingly rare whereby the buyer of acompany agres to pay the seller a fixed multiple of the actual profits of each of the next two or three years.

The alternative is often to try to get certain minimum levels of future profits made the subject of a warranty, but this is now very difficult to achieve except in the case of a forced sale or a classic traditional-style MBO.

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