Corporate Law & Financial and Capital Markets
Earn-outs in Brazilian M&A: structuring and disputes
Guilherme Chambarelli
Published on
3 min read
In this article
An earn-out is the part of the price in a Brazilian M&A deal that depends on the target’s performance after closing, usually measured by revenue, EBITDA or another metric over one to several years. It bridges valuation gaps between buyer and seller, but it is also one of the main sources of post-closing disputes. The key to a workable earn-out is precise drafting: metric, accounting rules, buyer’s conduct during the earn-out period and a fast mechanism to resolve disagreements.
Key points
- Brazilian law allows earn-outs as conditional price under freedom of contract.
- The metric must be defined with detailed accounting policies, not just “EBITDA”.
- Sellers usually seek covenants on how the buyer runs the business.
- Buyers often want the right to set off indemnities against earn-out payments.
- Disputes are typically referred first to an accounting expert, then to arbitration.
Why use an earn-out?
Earn-outs are common when the target is growing fast, depends on its founders or has results that are hard to project. The buyer pays part of the price only if expectations materialize; the seller can capture value it believes the business will generate. Earn-outs also keep sellers engaged when they stay on as managers.
Choosing the metric
| Metric | Advantages | Risks |
|---|---|---|
| Gross revenue | Simple to measure, less exposed to buyer’s cost decisions | May reward unprofitable growth |
| EBITDA | Reflects profitability | Sensitive to cost allocation, intercompany charges and accounting choices |
| Net income | Full picture of results | Affected by financing, taxes and non-operating items |
| Operational milestones | Clear triggers, such as a license or a contract signed | Binary outcome, with less flexibility |
Whatever the metric, the SPA should attach the accounting policies to be applied, a model calculation and a list of adjustments, such as integration costs, group overheads and one-off items. Brazil’s tax reform also matters: the shift from PIS and Cofins to CBS from 2027 and the gradual introduction of IBS can change reported revenue and margins, so the contract should state how tax changes are treated.
Buyer’s conduct during the earn-out period
Once the buyer controls the company, it can influence the result. Sellers typically negotiate covenants such as:
- running the business in the ordinary course and consistent with past practice;
- not diverting customers or revenue to other group companies;
- keeping separate accounts for the target;
- maintaining agreed investment or headcount levels;
- acceleration of the earn-out in case of sale of the business or breach.
Under Brazilian law, contracts must be performed in good faith, and a party that maliciously prevents a condition from being met may be treated as if the condition had occurred (Civil Code, Article 129). Clear covenants are still better than relying on general principles.
Set-off and security
Buyers frequently negotiate the right to set off indemnity claims against earn-out payments. Sellers try to limit this to claims that are final or undisputed, or to require amounts to be placed in escrow while a dispute is pending. Sellers may also ask for guarantees from the buyer’s parent company when the earn-out is large.
Tax points
For the seller, the earn-out is generally treated as part of the sale price and affects the capital gain calculation when it becomes due, including for non-resident sellers, who are taxed in Brazil on gains from Brazilian assets. For the buyer, it affects the acquisition cost and any goodwill analysis. Because the treatment depends on the structure and timing, it should be reviewed with tax advisers before signing.
Resolving disputes
- Buyer delivers the earn-out statement within a set period.
- Seller has access to books and records to review it.
- Disagreements go to an independent accounting expert, limited to calculation issues.
- Legal disputes, such as breach of covenants, go to arbitration under Law 9,307/1996.
Frequently asked questions
How long do earn-outs usually last?
Periods of one to three years are common, so that results still reflect the seller’s contribution.
Can the earn-out be paid in shares?
Yes, if agreed, but it adds valuation and corporate law issues that must be addressed in the SPA.
What if the buyer sells the company during the earn-out?
The SPA should say whether the earn-out accelerates, transfers to the new owner or is calculated on projected results.
How Chambarelli Advogados can help
Our Corporate Law & Financial and Capital Markets team and our Foreign Desk structure and negotiate earn-outs for buyers and sellers and represent clients in post-closing disputes. Book a meeting with one of our partners.
Informational content, updated October 2026. It does not replace advice on your specific case.
