Successful founders prioritize cash upfront over potentially larger payouts from complex earnouts. Earnouts often underperform because founders lose control of the business's future performance, leading to dissatisfaction despite a higher on-paper valuation.

An earn-out is a tool for alignment, not just a financial hedge. If a target company is on track to miss its earn-out targets, a savvy acquirer will proactively renegotiate the terms. The long-term value of retaining and motivating the key team members outweighs the short-term financial gain of a missed payment.

During diligence, speak directly with the target's largest clients. You may uncover deal-breaking risks, such as a client who will leave post-acquisition because their internal rules prevent reliance on a single, monopolistic supplier, a fact you would otherwise miss.

While often seen as aligning interests, giving sellers equity in the parent acquirer can backfire. It dilutes their risk on their specific business unit's performance, as their compensation becomes tied to the entire company's success. This can reduce focus on hitting their own unit's targets.

Founders should be wary of earn-out clauses. Acquirers can impose layers of pointless processes and overhead costs, tanking the profitability of a successful business and making it impossible for the founder to ever receive their earn-out payment.

Earnouts rewarding only the acquired team's siloed performance create a major integration roadblock. This structure incentivizes them to hoard resources and avoid collaboration, directly undermining the goal of creating a unified culture and destroying potential cross-functional value.

Many M&A teams focus solely on closing the deal, a critical execution task. The best acquirers succeed by designing a parallel process where integration planning and value creation strategies are developed simultaneously with due diligence, ensuring post-close success.

An acquisition target with a valuation that seems 'too good to be true' is a major red flag. The low price often conceals deep-seated issues, such as warring co-founders or founders secretly planning to compete post-acquisition. Diligence on people and their motivations is more critical than just analyzing the financials in these cases.

Understanding a founder's real motivation for selling is crucial. Some want a partner for growth, while others are seeking an exit. A founder could take a partial earn-out and leave the day after closing, abandoning the business and becoming your biggest integration risk.