Closing Remarks Q&A: Earnouts with Dara Shareef Featuring Wade Duncan

Should you accept an earnout when selling your business?

For many business owners, the answer isn’t as simple as yes or no. Earnouts are among the most talked-about and misunderstood aspects of an M&A process. Some owners see them as an opportunity, while others see them as a red flag.

In this Q&A episode of Closing Remarks, host Dara Shareef answers questions from Wade Duncan, Managing Director at Benchmark International, about what earnouts are, why buyers use them, and how understanding them can help business owners make more informed decisions during the sale process.

Key Highlights

• Learn what an earnout is and why it is used in M&A transactions
• Discover when this type of payment can help bridge the gap between buyer and seller expectations
• Understand why the structure of the agreement matters just as much as the purchase price
  

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What is an Earnout?

An earnout is a portion of the purchase price that’s paid after closing if the business achieves agreed-upon performance targets. It’s commonly used when buyers and sellers have different views of a company’s value. A seller may believe the business will grow significantly, while the buyer wants to see that potential proven before paying the full price.

When structured correctly, this approach can help bridge the valuation gap.

Are Earnouts Good or Bad?

Earnouts aren’t inherently good or bad; they are simply another way to structure a deal. Like any tool, they work well when they’re used for the right purpose.

Challenges can occur when performance goals are unclear, expectations aren’t defined, or the agreement isn’t carefully negotiated. That’s why experienced attorneys and advisors play an important role. The clearer expectations are defined before closing, the more they can help prevent misunderstandings later.

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Finding the Right Buyer is the Key

One of the biggest takeaways from this Q&A is that selling a business involves far more than accepting the highest offer.

Early in the sale process, many business owners focus on valuation, but finding the right buyer is just as important to achieving a successful outcome. The right buyer understands your company’s value, shares your vision for its future, and can structure a transaction that aligns with your long-term goals. Sometimes, that means considering more than just the amount offered at closing.

Be Flexible During the M&A Process

Owners usually only sell their companies once. During the process, it’s natural to have strong opinions. The key is to stay open-minded.

Selling a business isn’t just about maximizing value. It’s about finding the best fit for your company, your employees, and your legacy. As a result, Dara and Wade do not recommend dismissing any deals, including earnouts at the beginning. It all depends on the specific business and the seller's expectations for the deal.

Where to Watch

Regardless of whether you plan to sell your company now or later, it helps to know earnouts. In M&A deals, earnouts can be hard to understand. Knowing how earnouts work will give you practical insights into this deal structure.

Watch host Dara Shareef answer Wade Duncan’s questions about earnouts, fit, and why sometimes the best deal is not the one that gets all of the attention.

You can now watch the full Q&A episode of Closing Remarks with host Dara Shareef featuring Wade Duncan, now streaming on Spotify,  Amazon Music,  Apple Podcasts, and YouTube.

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