S&P Capital IQ Pro | Private equity leans more heavily on earnouts in exit deals - White & Case LLP

White & Case LLP's analysis, as indicated by its headline, reports that private equity sponsors are leaning more heavily on earnouts when exiting portfolio companies. An earnout makes part of the purchase price contingent on the target meeting defined post-closing performance targets, which lets sellers bridge valuation gaps with buyers and shifts some performance risk back to the seller. The full text of the analysis was not available, so specific deal counts, average earnout sizes, and sector breakdowns cannot be confirmed here.

Earlier S&P Global data provides context. According to S&P Global's coverage of earnout provisions, private equity- and venture capital-backed deals represented 26.5% of the 2023 total, up from 17.3% in 2022. That coverage describes these provisions as heavily negotiated. The 2023 figures are historical and should not be read as a measure of current deal terms.

Separately, S&P Global has reported that PE and VC-backed transaction activity reached its highest level in eight years. S&P Capital IQ coverage also describes exit activity as gaining momentum, with PE and VC firms acting as sellers in a growing share of transactions. Taken together, these sources suggest that rising exit volume and greater use of contingent consideration are occurring in the same market, although the sources do not establish a direct causal link between them.