When a buyer and seller cannot agree on value, the earn-out seems like the obvious answer. The seller who believes the business will outperform gets to capture that upside. The buyer who is more cautious limits the downside. Key people are incentivised to stay. The deal gets done.

It sounds elegant. And sometimes it is.

But the evidence tells a more sobering story. Across my experience and the research I have reviewed, including publications from business schools and Big Four companies, one conclusion is hard to ignore: earn-outs create problems far more often than most acquirers expect, and they frequently produce the opposite effect from what was intended.

Most investors would not approve a deal without checking the financial numbers. But many deals still move forward without a clear, fact-based view of the leadership team. Today, that is a serious risk.
Private equity and other investors are no longer just “buying and selling” companies. More and more, they are “buying and building” them. This means the investment result depends heavily on execution, or in other words, whether the leaders can actually deliver the plan. That is why Leadership Due Diligence is becoming more important. It is not “soft” work. It is a practical way to reduce risk and protect value.