Don’t let your client’s earnout disappear. This post exposes the M&A mistake sellers make by accepting vague buyer promises and offers a legal strategy to protect your client’s deal.
M&A Stories
August 12, 2025
When negotiating the sale of a business, buyers often propose a portion of the purchase price be paid as an earnout, tied to the company’s post-closing performance. This offer frequently comes with promises to dedicate specific buyer resources—new technology, a specialized sales team, or increased marketing—to help the seller hit the targets. However, the details of these critical promises often fail to make it into the final acquisition agreement as binding obligations. When the buyer’s resources don’t materialize, neither does the earnout, leaving the seller with a weak legal position.
This is exactly what happened to an entrepreneur who created a thriving online company selling organic skincare and dental products. Her deal included an earnout based on the post-closing profitability of the business. The seller, who would stay on to run the acquired company, was orally promised during negotiations that the buyer would provide a “tech-enabled platform” and a “team of experts.”
The promised resources never fully materialized, the earnout targets were missed, and the seller sued the buyer for fraud. She argued that the earnout failed because the buyer never delivered on its promises. Initially, the Ohio trial court dismissed the claim, but an appellate court reversed the decision, ruling that the seller deserved a chance to prove the buyer had lied about its promises.
In hindsight, the seller could have minimized this risk by insisting on specific, objective covenants in the acquisition agreement. A buyer’s obligation for a “team of experts” could have been defined as a detailed timeline for hiring experienced, full-time marketing and sales staff, complete with a specified minimum budget for a new marketing plan. The “tech-enabled platform” could have been specified with a clear description of the technology, a dedicated budget, and an implementation timeline.
By reducing these verbal promises to clear, objective obligations, the seller would have secured a far stronger legal position. Instead of relying on a difficult-to-prove fraud claim based on vague oral promises, she could have sued the buyer for breach of contract. This simple pre-closing step might have saved the seller a great deal of time and money that was ultimately spent fighting the buyer through the court system.
See: Primal Life Holdings, LLC v. Society Brands, Inc., Case No. 2024 CA 00178 Court of Appeals of Ohio, Fifth District, Stark County (August 4, 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals.
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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