Dr Allen Nazeri DDS MBAHealthcare M&A Expert

The Earnout Advantage: Ensuring Your Future After a Business Sale | PRIME exits™

15 May 2024 · 1 min

Watch on YouTube

1:18

Dr. Allen Nazeri explains earnouts with a concrete example: a $12 million business sale at 8x EBITDA. If the buyer grows EBITDA by $500,000 next year, the seller gets an extra $4 million. Earnouts let sellers capture future growth and give buyers confidence in acquisitions.

Chapters

Foreign.
Dive into the world of earnouts. Picture this. Your business is EBITDA or adjusted pre tax profit in the current year is $1,500,000. You agree to sell your company for $12,000,000 or an 8 times multiple of the EBITDA. Now fast forward to the next year. Your business achie million in EBITDA because of several pending contracts that is half a million more than the previous year, here's where an earn out comes into play. The buyer is contractually obligated to pay you an additional $4 million based on the eight times multiple set in 2024. This is your earnout. In essence, you're securing the same multiple for both years, offering protection and benefits for both buyer and seller. This strategic move is reserved for growing exceptional companies. It protects you from the upside potential and it mitigates the risk for the buyer as they don't have to pay for the unrealized growth potential up front. Please be sure to hit like Share and subscribe for more. Contact Prime Exits Today for a confidential discussion and evaluation of your company.