Garren Hilow bootstrapped Abveris, an antibody discovery business doing $12 million in revenue, and sold it in 2021 for $150 million up front with another $40 million available in an earnout. His team came within one percent of the revenue target. The acquirer said they had missed it, refused to share the accounting behind that conclusion, and dared him to sue.
Rob Walling sold Drip with 40 percent of his purchase price tied to an earnout and collected all but a fraction of it.
In this episode of Built to Sell Radio, John Warrillow puts the two founders side by side to work out what actually separated the two outcomes, and you discover how to negotiate an earnout you have a chance of collecting.
You’ll learn:
- Why a revenue-based earnout hands the acquirer the calculator, including the right to change how your revenue is recognized partway through the year
- Walling’s ranking of earnout milestones from worst to best, and the one type he tells founders to refuse outright
- Why taking more cash at close makes an acquirer less likely to fight you over the back end
- What a private equity buyer admitted over dinner about how often his firm plans to replace the founder
- The reporting clause Hilow left out of his agreement, and what its absence cost him
- How old Slack messages and a verbal instruction to work from home became grounds for a termination with cause
- Why an acquirer who intends to fold your company into theirs should not be offering an earnout at all
Watch the full episode below.
Quote of the Week
We were at 99% of the revenue number. They said we didn’t hit it, refused to pay, refused to show us the accounting behind it, and kind of just dared us to sue them.
Garren Hilow, on the $40 million earnout he never collected.
Curious what an acquirer might think of your business? Let’s take a look.
Deals
1901 Inc., a 125-year-old Wisconsin-based contractor that handles mechanical, electrical, and plumbing work for hospitals, universities, and industrial facilities across the Midwest, was acquired by Limbach Holdings (NASDAQ: LMB), a building systems and infrastructure services company, for $63M. 1901 is expected to generate $11M in EBITDA on $140M in revenue in 2027, implying a valuation of 5.7x forward EBITDA.
