Earn-outs in Irish M&A in 2025

Most Irish M&A deal trackers indicate that the first half of 2025 had more transactions than the same period last year, but that the overall value of deals has dropped by over 50%. There were fewer larger transactions that inflate transaction value, with a healthy flow of mid-market deals, many of which had an increased reliance on the use of earn-outs as a pricing mechanic.

Earn-outs can be attractive for buyers and sellers. Buyers pay part of the price at completion and commit to pay more if the business hits agreed targets in the years ahead. For sellers it is a way of sharing in future growth and realising a higher value for their business. For a buyer, it reduces the risk of paying for growth that never materialises.

Earn-outs are not new to the Irish market, but, with increased international trade uncertainties, they are used more frequently, particularly in technology, life sciences, professional services and renewables, sectors where newer businesses have significant growth potential and “hope value”.

Why they appeal and why they can disappoint

For buyers, an earn-out reduces the upfront financing burden and reduces the risk of overpayment. For sellers, an earn-out offers the possibility of a higher headline price, but the risk of not being paid the expected price is real. Once control has passed, sellers are dependent on how the buyer runs the business. Earn-outs are a fertile source of litigation, from arguments about what counts as EBITDA to disputes over diverted sales. A well-known UK case involving a pharmaceuticals transaction, where sellers chased £41 million in contingent payments and emerged with a fraction of that amount, is a cautionary tale.

In practice

In practice, clear definitions of key concepts are essential, for example, drafting the elements underpinning EBITDA almost always requires a bespoke formula. Post completion conduct of the business can also become a deal flashpoint, with sellers typically wanting covenants that prevent buyers from starving the business or overloading it with costs, while buyers push back against being unduly restricted from integrating the new business into their operations. Information rights are another common battleground. Sellers are increasingly insistent on access to the turnover, profit and financial metrics of the business and even to requiring independent checks. Tax adds further complexity, as Irish CGT rules for a capped earn-out price can trigger tax payable upfront, including the potential amounts due under the earn-out formula, on the maximum amount, even if it is never actually paid.

2025 reality check

The current economic environment has helped to make earn-outs more attractive but with a  health warning that earn-outs may be more contentious. Earn-outs require painstaking negotiation, drafting, realistic modelling, and early tax planning. They may be the bridge across the valuation gap in the current market, but without care, proper management, and diligent advice they can just as easily become the cause of litigation.

For further information or advice, please contact Ken Casey (kcasey@hayes-solicitors.ie), David Mangan (dmangan@hayes-solicitors.ie), Matthew Van Der Want (mvanderwant@hayes-solicitors.ie)  or your usual Hayes contact.