Deferred Consideration & Earn-Outs

Being paid later, out of a business you no longer control.

Sellers compare offers on the headline number. The right comparison is what actually reaches the account, when, and with what probability — because a smaller guaranteed sum paid on completion is frequently worth more than a larger figure of which a substantial part is contingent, deferred and unsecured.

Three Different Risks, Frequently Confused

A retention is part of the price held back on completion, usually in a separate account, for a defined period, as security against warranty claims or a specific identified risk, and released if nothing arises. That is a timing and security question. Deferred consideration is part of the price payable on fixed dates afterwards — certain in amount, uncertain only as to whether the buyer will pay. That is a credit question. An earn-out is different in kind: part of the price is contingent on the business achieving something after completion, usually a level of turnover or profit. That is a control question, and it is why earn-outs are the most dangerous of the three. The seller is paid by reference to a business they no longer own or run. The buyer decides what it spends, what it invests in, how costs are allocated, whether it is merged into another operation, whether staff or customers move elsewhere in the group. None of that needs to be done in bad faith for the target to become unreachable — ordinary post-acquisition integration can have exactly that effect, which is why earn-out disputes are so common.

What to Insist On

For an earn-out: a clearly defined, objectively measurable metric, with the accounting policies for calculating it specified in the agreement rather than left to be agreed later — that single point prevents a large share of disputes. Conduct covenants restricting what the buyer may do during the period: no diverting business elsewhere in the group, no arbitrary cost allocations, no fundamental change to how the business is run. Information rights, so you can actually see the figures rather than receive a number at the end. A dispute mechanism referring disagreements to an independent expert, so they are resolved in weeks rather than through litigation. And realistically, either a role for you during the period, or an acknowledgement that without one the target should be lower and the guaranteed element higher. For deferred consideration, the question is security: a charge over assets, a parent company or personal guarantee where the buyer is a special purpose vehicle, retention of a shareholding until the final payment, or escrow. A buyer resisting every form of security is telling you something about their funding or their intentions. Where it goes unpaid, it becomes an ordinary commercial debt — recoverable through the same route as any other, via debtrecoverysolicitor.ie — and a judgment is worth only what the buyer can actually pay.

Comparing Two Offers?

Compare what actually arrives and when, not the headline figures. A contingent element is a risk you are carrying, and it should be priced and protected accordingly.

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Related Reading

Deferred Consideration - FAQs

A retention is part of the price held back on completion, usually in a separate account, for a defined period, as security against warranty claims or a specific identified risk - released to the seller if nothing arises. Deferred consideration is part of the price payable on fixed dates after completion; it is certain in amount, uncertain only as to whether the buyer will actually pay. An earn-out is different in kind: part of the price is contingent on the business achieving something after completion, typically a level of turnover or profit over a period. A retention is a timing and security question. Deferred consideration is a credit question. An earn-out is a control question, and that is why it is the most dangerous of the three for a seller.

General information, not legal advice. This website contains general information about Irish law on business sales and acquisitions. It is not legal advice and does not create a solicitor—client relationship. Every transaction turns on its own facts — the structure, the documents, the parties, the consents required — and advice on yours requires a consultation.

Nothing here is tax advice, and tax drives structure. The choice between an asset sale and a share sale is very largely a tax question, and it should be settled with your accountant or tax adviser, and by reference to Revenue’s own guidance, before heads of terms are signed rather than afterwards. This firm does not advise on tax, does not state rates, thresholds, reliefs or conditions, and does not indicate any tax outcome.

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