E37: DealCon Roundup Part 2: Earnouts in Agency M&A

SummaryIn this episode of the Inorganic Podcast, co-hosts Ayelet Shipley and Christian Hassold discuss the complexities of earnouts in agency acquisitions in the context of discussions covered at DealCon 2025. In this episode, Ayelet and Christian explore the reasons earnouts are used, the difficulties in negotiating them, and the importance of maintaining operational control and alignment between buyers and sellers. The conversation emphasizes the need for clear expectations and mutual understanding to navigate the intricacies of earnouts effectively.TakeawaysEarnouts are often used to bridge valuation gaps in acquisitionsBuyers typically dislike the complexity of earnouts but find them necessaryAccording research, significant percentage of earnouts (>55%) are never paidNegotiating earnouts should ideally happen early in the deal processOperational controls are necessary for buyers and sellers to achieve earnout targetsCultural alignment between buyers and sellers is essential for successEarnouts should generally not exceed 15-20% of the total transaction valueProtracted earnout negotiations can lead to deal fatigue, which can pose risk to deal timeline or completionChapters0:26 Introduction to Earnouts1:05 Why Earnouts Are a Key Topic1:34 The Purpose and Function of Earnouts02:21 Common Uses of Earnouts in M&A3:45 Challenges in Structuring Earnouts5:58 Pipeline Credit and Control in Earnouts10:24 Negotiating Earnouts & Deal Fatigue12:05 Maintaining Seller Control for Earnout Success15:15 Cultural Alignment in Earnout Negotiations14:41 Structuring Earnouts Strategically16:29 Key Takeaways on EarnoutsConnect with Christian and AyeletAyelet’s LinkedIn: https://www.linkedin.com/in/ayelet-shipley-b16330149/Christian's LinkedIn: https://www.linkedin.com/in/hassold/Web: https://www.inorganicpodcast.coIn/organic on YouTube: https://www.youtube.com/@InorganicPodcast/featured Hosted on Acast. See acast.com/privacy for more information.