The seller wants Rs 800 crore and you value the business at Rs 600 crore. Design an earnout on year 2 EBITDA that bridges the gap, and show what the seller receives under three outcomes.

Pay Rs 600 crore at close, plus Rs 10 crore for every crore of year 2 EBITDA above Rs 60 crore, capped at Rs 200 crore. That is 10x whatever EBITDA actually arrives, never less than the buyer's value or more than the seller's. At Rs 55 crore the seller gets Rs 600 crore, at Rs 70 crore Rs 700 crore, at Rs 85 crore the capped Rs 800 crore. The hard part is defining EBITDA and protecting the seller from the buyer's control.

Because the two sides are not arguing about value, they are arguing about a forecast. Think of selling a flat where the buyer says the metro line will not open on time and you say it will: rather than split the difference, you agree a price now and a top-up if the line opens by a date. An earnoutPart of a purchase price paid later, only if the business hits an agreed financial target after the sale. converts a disagreement about the future into a payment that waits for the future to arrive. Each side keeps its own view, and the one who turns out right gets paid for being right.

Start from the shared multiple. Both sides accept 10x, so the fair total price is 10x year 2 EBITDA. Pay the buyer's value up front, Rs 600 crore, and let the earnout add Rs 10 crore for each crore of EBITDA above Rs 60 crore, so the total always equals 10x the delivered number. Cap it at Rs 200 crore, the seller's own number, because the seller cannot ask for more than their forecast; and make it straight line, not a cliff, so the founders are not paid nothing at Rs 79 crore and everything at Rs 80 crore. A cliff invites a fight over the last rupee.

Four things, and interviewers listen for them more than for the slope. First, define EBITDA line by line: the accounting policies frozen at signing, no charge for the buyer's management fees or financing, no credit for synergies the buyer brings. Second, the buyer controls the business for two years and could starve it of marketing to shrink the payment, so the seller needs covenants: a minimum budget, no change to the distribution model without consent, and the earnout accelerating if the buyer sells or merges the company. Third, an audit right and a quick dispute mechanism. Fourth, a say on how the earnout is paid: cash, escrowed at close if the seller is nervous, or shares if the buyer is short of cash.

Say the limit too. An earnout keeps the founders focused on one number for two years, and that number can be gamed: pushing stock into distributors in month 23 lifts EBITDA and leaves the buyer with returns in month 25. Where the founders stay to run the business, this is manageable. Where they leave at close, an earnout on a number they do not control is a promise to argue later, and a lower fixed price is better for both sides.