B2B Services Earnout Structures: An Independent Sponsor's Counsel
Securities and M&A counsel for independent sponsors structuring B2B services transactions, from LOI to close to the capital markets that open up afterward.
Earnout Structures on B2B services deals is one of those workstreams that looks routine on a checklist and decides outcomes in practice.
The typical B2B services platform sits at $8M to $90M EV with EBITDA in the $2M to $18M range. The thesis runs on recurring revenue service platform with bolt-on operators. Most B2B services deals look better in the CIM than in the data room. Skip the CIM, ask for the contracts.
How Earnout Structures actually gets structured.
Tie the earnout to gross profit or contribution margin, not revenue, to avoid sandbagging.
Cap the earnout window at 24 months. Anything longer is a litigation risk.
Build acceleration on a change of control or buyer-driven operational change.
Name an arbitrator and the accounting standard in the agreement.
In B2B services, layer in MSA assignability mapped customer-by-customer as part of the Earnout Structures workstream.
Drafting the earnout in three paragraphs. Earnouts are the second-most-litigated provision in M&A.
"If the earnout could be measured by a teenager with a spreadsheet, you wrote it well."Jason Powell · Earnout Structures
The deal is one thing. The capital that opens up after close is another.
The capital that opens up post-close, from refinancing to growth equity to strategic exit, runs through a small set of Wall Street relationships. That network is built in.
Related deal pages.
LOI Negotiation for B2B Services
The 4 to 8 page agreement that frames the deal economics, exclusivity, and diligence period.
Independent Sponsor Economics for B2B Services
The package of deal-by-deal carry, management fees, and transaction fees that compensates the independent spo…
Management Fee Structuring for B2B Services
The annual fee paid by the deal entity to the independent sponsor for ongoing oversight, board service, and p…
Equity Rollover for B2B Services
The portion of seller proceeds reinvested into the post-close entity, aligning seller with buyer.
Earnout Structures for Healthcare Services
roll-up of physician practices and ancillary service lines
Earnout Structures for Home Services
regional roll-ups of HVAC, plumbing, and electrical operators
An LOI on the desk, a B2B services target, and a Earnout Structures question worth a real conversation.
Twenty minutes of practitioner-grade input from a securities attorney whose first move is to read the deal, not the engagement letter.