M&A Seller’s $17M Earnout Dispute: Lessons from a Healthcare Tech Acquisition


Explore the intricacies of a healthcare tech acquisition with a $17 million earnout dispute. Gain insights into the importance of due diligence, clear terms, and transparency in M&A transactions. Learn from the legal actions, key findings, and implications for both buyers and sellers. Case reference: Rheault v. Halma Holdings Inc.

M&A Stories

December 3, 2023


Selling your company with a substantial earnout can be a gamble. This case underscores the need for meticulous due diligence and clear terms when entering into such agreements.


In 2021, a healthcare tech company, offering a range of solutions, underwent a stock acquisition. The buyer, a global consortium of life-saving tech firms, valued the target at $30 million, with a potential $17 million earnout based on specific sales benchmarks within two years.


Issues emerged during the earnout period. The buyer failed to disclose prior obligations from a competing acquisition, impacting the target’s post-sale performance. Allegations include a breach of contract regarding sales representatives and delayed product launches.

Legal Actions:

The seller filed a lawsuit, citing fraud for non-disclosure and breach of contract for failing to promote post-sale products. The buyer countered with a motion to dismiss, arguing no duty to disclose and insufficient allegations.

Key Findings:

The court found the fraud allegations valid, emphasizing the buyer’s duty to disclose conflicting agreements. The absence of an anti-reliance clause allowed the seller’s fraud claim to proceed. The breach of contract claim stood, supported by specific instances of unfulfilled promises.


Transparency is crucial for buyers proposing earnout provisions. Sellers should be wary of anti-reliance clauses, enhancing their ability to address buyer commitments based on fraud during negotiations.

Case Reference:

Rheault v. Halma Holdings Inc., Civil Action No. 23-700-WCB United States District Court, D. Delaware (November 7, 2023).

By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.

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