earn-out agreement

earn-out agreement
= contingent contract
An agreement to purchase a company in which the purchaser pays a lump sum at the time of the acquisition, with a promise to pay more (a contingent consideration) if certain criteria, usually specified earnings levels, are met for a specified number of years. This method of acquisition has been popular in 'people' businesses, in particular advertising agencies. The agreement provides a means of retaining the previous owners in the business, with a motivation to maintain the company's profitability.

Big dictionary of business and management. 2014.

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