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    Earn-Out

    Acquisition consideration paid contingently after closing based on achievement of agreed milestones (regulatory, revenue, or technical).

    Reviewed by Christian Espinosa, Founder, Blue Goat CyberLast reviewed May 9, 2026

    Definition

    An earn-out is a portion of acquisition consideration paid after closing only if the acquired business achieves agreed milestones, typically FDA approval, CE marking, revenue thresholds, integration milestones, or specific technical achievements. In MedTech, where regulatory and commercial risk is concentrated in identifiable inflection points, earn-outs are extremely common and may represent 30-60% of total deal value. Earn-outs can take the form of cash payments, contingent value rights (CVRs) traded as securities, or escrowed equity.
    What the regulation says
    Earn-outs are principally governed by the acquisition agreement and applicable contract law, not a dedicated MedTech regulation. Parties should specify milestone definitions, measurement periods, operational obligations, information rights and dispute procedures; enforceability depends on the governing jurisdiction. ABA and NVCA materials are drafting resources, not binding legal requirements. If contingent value rights qualify as securities, the Securities Act of 1933, enacted May 27, 1933, is relevant: Section 2(a)(1) defines securities, and Section 5 generally requires registration of offers and sales unless an exemption applies. Securities treatment depends on the instrument’s structure. Regulatory milestones should reference the actual authorization pathway. For US devices, Section 515 of the Federal Food, Drug, and Cosmetic Act, added by the Medical Device Amendments of 1976, enacted May 28, 1976, governs premarket approval; FDA clearance should not be conflated with approval. In the EU, Regulation (EU) 2017/745, adopted April 5, 2017 and generally applicable from May 26, 2021, addresses conformity assessment in Article 52 and CE marking in Article 20. These provisions govern devices, not earn-out payments. Contracts should identify the precise regulatory event triggering payment and allocate responsibility for pursuing it.

    What this means in practice

    Earn-out disputes are one of the most litigated areas of M&A. Common flashpoints: who controls the post-close business decisions that drive milestones, whether buyer must use commercially reasonable efforts, and how revenue is measured.

    Examples

    • A MedTech startup selling a novel diagnostic device agrees to an earn-out where 40% of the acquisition price is contingent on securing FDA 510(k) clearance within two years.
    • Following the acquisition of a surgical robotics company, an earn-out provision ties additional payments to achieving specific revenue thresholds for a new product line in Europe over a three-year period, requiring CE marking.
    • An acquirer pays a portion of the deal value upfront for a drug-delivery system, with a significant earn-out component released only after successful completion of a Phase II clinical trial demonstrating product efficacy.
    Common pitfalls
    • •Drafting earn-out triggers loosely so the buyer can de-prioritize the program post-close.
    • •Failing to negotiate operating covenants that protect the path to earn-out.

    Frequently asked questions

    MedTech earn-outs are most commonly tied to FDA approval or clearance, CE marking, revenue thresholds, post-close integration milestones, or specific technical achievements, reflecting the identifiable regulatory and commercial inflection points characteristic of the industry, and can represent 30 to 60 percent of total deal value in transactions involving pre-approval or early-commercial technology. This structure lets buyers pay less upfront for unproven risk while still compensating sellers if that risk resolves favorably.

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    Sources

    3 sources

    Every citation below opens the original document. Each is graded against our source-tier hierarchy so you can see what rests on binding law versus commentary.

    Tier 4Trade press and expert commentary· 3
    Link health: 3 verified· last checked 2026-06-20
    ABA·1NVCA·1SVB·1
    1. 1
      ABA M&A Committee, Earnouts
      Tier 4 Verified
      ABAamericanbar.org
    2. 2
      NVCA Model Merger Agreement
      Tier 4 Verified
      NVCAnvca.org
    3. 3
      Silicon Valley Bank - Healthcare Reports
      Tier 4 Verified
      SVBsvb.com

    Inline markers like [1] jump to the matching reference above.