Separate cash at closing from the maximum earnout
AfterMail’s announced structure shows why contingent value needs its own analysis.
When Quest Software announced its acquisition of AfterMail in 2006, the stated consideration included approximately $14.7 million in cash plus up to $30 million of performance-based consideration over three years. The public filing does not establish how much of that contingent amount was ultimately paid.
That distinction is the lesson. “Up to” value is not equivalent to cash at closing. It is a future claim whose value depends on the metric, operating plan, buyer conduct, measurement period, and enforcement rights.
Start with what must happen. Revenue, earnings before interest, taxes, depreciation, and amortization (EBITDA), customer retention, and product milestones create different incentives. Revenue can reward low-margin work. EBITDA depends on accounting policies, cost allocations, investment, and integration decisions. A milestone is useful only when completion can be measured objectively.
Then ask who controls the result. After closing, the buyer may set pricing, staffing, marketing, capital spending, and customer assignments. The agreement should address how those decisions interact with the earnout, along with reporting, access to records, calculation notices, objection periods, dispute resolution, payment timing, and the consequences of a resale of the business or, if the seller remains involved, termination of the seller’s post-closing role during the measurement period.
Evaluate an earnout as a separate, illiquid, contingent asset. Compare its risk-adjusted value with additional cash, rollover equity, a seller note, or a different buyer proposal. The headline should clearly distinguish what is paid from what still must be earned.