As M&A markets adjust to ongoing macro uncertainty, which has now been the status quo for several years, the gap between buyer and seller valuation expectations persists. Many sellers, especially in software and healthcare, still reference 2021 valuations, while buyers are taking a more conservative view due to persistent inflation, high interest rates, and constraints on leverage.

To bridge the gap, contingent consideration tools, such as earn-outs, deferred payments, and vendor loans, are becoming more common. These structures align incentives; buyers reduce upfront risk, while sellers retain additional upside based on future performance.

Deal terms are evolving accordingly:

• Earn-outs are often extending to 24-36 months.
• Governance terms are tightening to maintain alignment post-closing, with examples including board observer rights, shared approval over budgets or key hires, and veto rights on major strategic decisions during the earn-out period.

Herbert Smith Freehills reported that contingent consideration structures increased materially in 2024, and a 2025 deal terms study by PE Professional showed that 68% of deals using earn-outs included multiple performance metrics, reflecting the complexity needed to bridge the buyer-seller mismatch. While contingent consideration has long served as a tool for bridging the buyer-seller divide, it has become significantly more commonplace. Its appeal lies in aligning value with future performance in a way that accommodates current market uncertainty.

These mechanisms offer sellers the potential for higher multiples if the business performs as forecasted, while mitigating overpayment by buyers in the event that future growth underperforms expectations. As a result, they are becoming an increasingly standard feature of deal structuring in today’s market.