What is an earnout in a healthcare M&A deal?

Earnouts show up in healthcare deals for two reasons: the buyer wants the seller to stay engaged through the transition, or the buyer and seller disagree on the growth story and the earnout lets them split the risk. How much rides on one depends on the buyer. Jaffe Law, which handles dental practice sales, says earnouts are common in DSO transactions at 10% to 30% of deal value and rare when the buyer is a private dentist, and Marti Law Group puts the usual measurement period at one to three years after closing. Physician practice deals are the exception: Foley & Lardner notes that traditional earnouts have always been difficult to use in physician recapitalizations because of regulatory concerns, and private equity sponsors there lean on set, deferred payments that a physician forfeits by leaving early. Smaller deals use them more: SRS Acquiom found an earnout in 29% of lower middle-market deals (closing payments of $50 million or less) and in 35% of deals up to $25 million. They also pay less than sellers expect. Across the private deals SRS Acquiom tracks, the achievement rate for earnouts outside life sciences is 21 cents on the dollar. The mechanics that matter: what counts as EBITDA (is it before or after the buyer's corporate allocations), who controls operations during the earnout period, what happens if the buyer changes strategy, and is there a cure period or a catch-up if one year misses and the next year overperforms. In CRA International's March 2026 review, disputes frequently turn on how the performance metric was defined and applied, and on whether a missed target reflects the buyer's conduct or outside factors. Locking those rules down before signing is deal work a fractional CFO does alongside your attorney.