Not Just Boilerplate
An earnout provision in mergers and acquisitions contracts entitles the seller of the target company to additional compensation in the future if the target performs well after closing. Such a provision is often used when a gap exists between the buyer’s lower valuation and the seller’s higher valuation. Essentially, it is a way for the buyer to say, “if you think your company is really worth as much as you say it is, prove it.”