The earnout is where a PR agency deal is won or lost

By Tim Sutton, senior reputational adviser and PR-agency M&A counsel · June 2026

An earnout is the part of an agency sale price you have not been paid yet, and in most PR deals it is where the money is really won or lost. The headline number gets the handshake. The structure decides what actually reaches your account two or three years later.

What an earnout actually is, and why a buyer insists on one

Strip away the dressing and it is simple. When a buyer acquires a PR agency, the headline number is rarely the cheque that clears on completion. A chunk of it, and in agency deals frequently a large one, is deferred and made contingent on the firm hitting agreed targets over the years that follow. Two to three years is the common window. The buyer pays some cash up front, then pays the rest only if the business performs.

Buyers insist on this for a plain reason. They are not really buying last year's profit. They are buying the chance that this year's profit, and next year's, survives the change of ownership. People businesses are leaky. The clients can leave, the talent can leave, and the founder whose name opens the doors can quietly check out the day the money lands. The earnout exists to keep the seller's interests pointed the same way as the buyer's for long enough to find out whether what was bought is still there.

So far, so reasonable. The trouble starts with what the seller hears.

Why the headline price and the money you walk away with are two different numbers

A founder hears the headline. The buyer means the structure. I have sat in rooms where an owner has spent a fortnight celebrating a number that, read properly, they were a long way from certain to see in full. The price you announce to yourself in the car home and the money you actually walk away with two or three years later are different numbers, and the distance between them is the earnout. Almost everything that matters in an agency sale lives in that gap.

The reason most earnouts disappoint is not bad faith. It is that the seller negotiated the price and accepted the mechanism, when the mechanism was the price.

Where the two sides stop agreeing

An earnout is built to align the two sides, and for a while it does. Here is the thing I find myself saying from whichever chair I am in. I advise founders and acquirers through these transactions, acting for one side on any given deal, and it is the same advice either way: the earnout is also the precise point where, once the deal closes, the two sides' interests begin to pull apart. Before completion you both want the deal to happen. After completion the buyer would like the targets demanding and the seller would like them fair, the buyer holds the levers that move the numbers and the seller carries the risk on the outcome. That divergence is not a flaw in the deal. It is the deal. Pretending otherwise is how founders get hurt.

Let me name the few things that quietly decide whether the money arrives.

The things that quietly decide whether you get paid

Client retention and concentration. A firm with one client at forty per cent of revenue is not a firm, it is that client with an agency attached. Buyers know this, which is why concentration depresses the up-front number and loads the risk into the earnout. If that account wobbles in year two, for reasons that may have nothing to do with you, the deferred payment goes with it. Spread the book before you sell, not during the earnout, when it is too late to matter.

Founder dependence. The cruel arithmetic of selling a PR agency is that the more the firm depends on you, the more a buyer wants you, and the harder it is for you to ever leave. If the relationships, the new business, the creative judgement all run through the founder, the earnout becomes a golden cage. You have sold the asset and you are still the asset. The work of reducing that dependence, promoting the people who can carry the relationships, putting your second line in front of clients, has to be done in the two years before the sale, not written into the contract as a hope.

Who runs the P&L during the earnout window. This is the one founders underrate most. You have agreed to be paid on the firm's profit, and you have just handed control of that profit to the buyer. The buyer now allocates the overheads, sets the transfer prices, decides which central costs land on your line, chooses whether your team gets pulled onto a group pitch that earns you nothing. None of that need be malicious, and a serious buyer is not trying to chisel you. It is simply that a hundred small decisions about cost and credit now sit on the other side of the table. The careful buyers know it, which is why they hard-wire the method into the contract rather than leave it to trust. If your agreement does not ring-fence how the earnout profit is calculated, you are asking goodwill to do the work that a clause should do. Ask too for the right to see the figures your payment is calculated from, with an independent expert to break any deadlock.

How performance is defined and measured. Top line or bottom line. Revenue or EBITDA. Gross or net of the costs the buyer controls. Whether a client the group brings you counts toward your number, and whether a client you lose because the group reorganised counts against it. These definitions are the earnout. I have seen a seller argue the headcount for a fortnight and wave through the profit definition in an afternoon, which is exactly the wrong way round.

What happens to your autonomy. The same independence that built the firm and made it worth buying is the thing most likely to evaporate after completion. You wrote your own cheques, hired on instinct, turned down work you disliked. Now there is a budget cycle, a group travel policy, a referral expectation, and a boss. For some founders that is a relief. For others it is the reason the earnout fails, because a constrained founder stops performing and the numbers follow the mood. Be honest with yourself about which one you are before you sign, not after.

How the deferred money is taxed. The lever I am most often surprised founders have not been warned about, because it can cost more than anything they win across the table. Whether your deferred money is taxed as a capital gain or as employment income turns on how the earnout is structured, and above all on how tightly it is tied to your staying on. Get that wrong and a sum you had filed under capital arrives shorn by income tax and National Insurance, which on a sizeable earnout is a gap measured in six figures. I am not your tax adviser and this is not the place for a schedule of rates. The point is only the timing: this is shaped before you sign, not reclaimed afterwards. Bring a specialist in while the structure is still soft, not once it has set.

How to de-risk an earnout before you are at the table

How should a founder think about de-risking all this before they are at the table? Start from the assumption that the deferred money is not yours until it is in your account, and work backwards. Take more cash up front and a smaller earnout, even at a lower headline, if the structure is one you do not control. Fix the profit definition in writing, with worked examples, not principles. Cap the costs the buyer can push onto your line. Look hard at who is actually promising to pay you, because deferred money is only as good as the entity behind it, so press for a parent guarantee, an escrow, or security where the buyer's covenant is thin, and understand its right of set-off before you lean on a number. Build the second line of leadership a full two years early so founder dependence is already falling when the buyer does its diligence. Settle now what happens if they decide they no longer want you, so that a founder pushed out in year two does not forfeit an earnout they were on course to hit; a good-leaver clause that protects the deferred money on dismissal or ill health is worth more than another point on the headline. And decide, in advance, how you will feel about three more years inside someone else's organisation, because the best earnout in the world pays nothing if you walk out in month nine.

None of this is an argument against selling, or against earnouts. A well structured earnout can pay a founder more than a clean cash deal, because the buyer will reach further for a number they only pay if it comes true. It is an argument against negotiating the part you can see and signing the part you cannot. The headline gets the handshake. The structure gets you paid. Spend your energy accordingly.

If you are weighing whether this is even the year to sell, that is the subject of the companion piece on what buyers actually price, and when to start. If you are closer to the table, the readiness work is where I help: you can see how your firm scores on the founder dependence and client concentration that decide an earnout with my sell-side readiness scorecard, or talk it through with me directly.

See the sell-side readiness scorecard Speak with Tim in confidence

Tim Sutton is a senior reputational adviser to boards in their hardest moments and counsel to PR-agency principals on both sides of a transaction. timsuttonpr.com · LinkedIn