If a buyer is offering to acquire your business now and pay part of the price later — in cash tied to future performance, or in shares tied to a future listing — treat the earn-out as the real negotiation, not a formality bolted onto the headline price. The structure of that deferred consideration determines whether you actually collect it. Get the triggers, the controls, and the downside protection wrong, and a healthy-looking offer can turn into years of chasing a payout that never fully materialises.
This question is landing on more founders’ desks because of a pattern playing out across professional services in Malaysia right now. The Edge Malaysia recently reported that ZICO, the professional services group, is eyeing a LEAP market listing. That kind of move rarely happens in isolation — groups preparing for a listing typically spend the preceding one to three years acquiring smaller practices to build scale, geographic spread, and a growth story that supports a higher valuation multiple. If you run a law firm, accounting practice, engineering consultancy, or similar SME and a consolidator has approached you, you are looking at exactly this dynamic.
Why buyers structure deals this way
A consolidator building toward a listing has an incentive to conserve cash and defer risk onto the seller. Three mechanisms show up again and again:
Cash-plus-earn-out. You get a base price on completion, plus additional cash tied to hitting revenue or profit targets over 12–36 months.
Cash-plus-shares. Part of the price is paid in shares of the acquiring entity, which may become tradeable only if and when it lists.
Pure share swap. Your business becomes a subsidiary of the consolidator, and your only liquidity event is the group’s eventual listing or sale.
Each structure shifts different risks onto you. A cash-plus-earn-out risks the buyer manipulating post-acquisition numbers. A cash-plus-shares or pure swap deal risks the listing being delayed, downsized, or abandoned entirely — leaving you holding illiquid paper in a private company you no longer control.
What “eyeing a listing” actually means for your negotiation
Reporting that a group is “eyeing” or “considering” a LEAP listing is not the same as a confirmed listing with a set timetable. Any acquirer’s stated listing intention should be treated as a plan, not a fact, until there’s a lodged prospectus or an appointed listing sponsor. That distinction should shape how much of your consideration you’re willing to leave at risk.
If you’re being asked to accept shares or a deferred payout contingent on a future listing, the honest question to ask the buyer is: what happens to my consideration if the listing doesn’t happen on schedule, happens at a lower valuation than projected, or doesn’t happen at all? A buyer confident in their timeline should have no difficulty answering that in writing.
Comparing the three earn-out structures
| Structure | Your risk | Your leverage point | What to negotiate |
|---|---|---|---|
| Cash-plus-earn-out (performance) | Buyer controls post-deal reporting and can suppress numbers | Define metrics precisely; retain some operational control | Independent audit rights, capped adjustments, clear formula in the SPA |
| Cash-plus-shares (listing-contingent) | Listing delayed, downsized, or scrapped | Buyer needs your business to strengthen their listing story | Floor price guarantee, cash fallback if listing doesn’t occur by a set date |
| Pure share swap (no listing certainty) | Total loss of liquidity if listing never happens | You’re often a meaningful minority holder in the enlarged group | Board seat or veto rights, buy-back clause, minimum dividend commitment |
None of these structures is inherently wrong. Each can work — but only if the protective clauses are actually in the agreement, not implied by goodwill or a verbal assurance from the buyer’s principals.
The clauses that actually protect you
A hard deadline with a cash fallback. If consideration is tied to a listing, specify a date by which the listing must occur. If it doesn’t, the unpaid balance converts to cash, payable on agreed terms. Without this, “we’re still working on it” can stretch indefinitely.
Independent verification of earn-out metrics. Whoever controls the post-acquisition books controls whether you get paid. Insist on the right to appoint your own accountant to verify the numbers used to calculate any earn-out, at the buyer’s cost if a material discrepancy is found.
Anti-dilution protection on share consideration. If you’re issued shares before a listing, a subsequent funding round can dilute your stake well before you see any liquidity. Negotiate anti-dilution terms or a minimum percentage floor.
Restraint on the buyer’s ability to change your metrics. Watch for clauses that let the acquirer restructure the business post-completion in ways that make your earn-out targets harder to hit — moving clients between entities, changing your reporting line, or folding your practice into a shared services model that obscures your standalone performance.
Your own exit ramp. If things go wrong — the listing stalls, the relationship sours, targets become unreachable for reasons outside your control — you need a defined mechanism to exit your remaining stake, even at a discount, rather than being locked in indefinitely.
When the earn-out isn’t worth the risk
Sometimes the right answer is to push for more cash upfront and less deferred consideration, even if it lowers the headline valuation. We generally advise this when:
- The buyer’s listing timeline depends on regulatory approvals or capital raises that haven’t started
- You’d become a minority holder with no board representation or information rights
- The buyer’s existing acquisitions haven’t yet been folded into a coherent, profitable group
- Your business is a small enough contributor to the enlarged group that your leverage disappears after signing
A lower cash price today that you can actually bank is often worth more than a higher headline figure contingent on someone else’s listing succeeding on schedule. This is the same logic that applies when comparing a full sale against other exit routes — our article on choosing the right exit route for your Malaysian SME covers the broader decision before you get to deal terms.
If the buyer specifically is a LEAP-bound acquirer, it’s also worth weighing the alternative of holding out for a private buyer altogether, which we cover in Should You Sell to a LEAP-Listed Acquirer, or Hold Out for a Private Buyer?
Getting the valuation conversation right before you sign
Founders often focus their energy on the headline multiple and treat the earn-out mechanics as legal boilerplate to be sorted out later. In practice, the mechanics are where the real value transfer happens. A 6x EBITDA offer with a weak earn-out structure can be worth less, in expected terms, than a 4.5x offer paid mostly in cash on completion. Model both scenarios — best case and worst case — before you compare headline numbers.
This is exactly the kind of structuring work we do with founders in our M&A and succession advisory engagements: stress-testing the deal terms a buyer proposes, not just the price, so you know what you’re actually likely to collect.
Frequently asked questions
What’s a reasonable earn-out period for a professional services firm?
Twelve to twenty-four months is typical for services businesses where client relationships transfer relatively quickly. Longer periods increase your exposure to factors outside your control — buyer restructuring, market shifts, client attrition driven by the acquisition itself — so push back on anything beyond three years unless the cash proportion is high enough to offset that risk.
Can I ask the buyer for proof of their listing plans before agreeing to share consideration?
Yes, and you should. Ask for their engagement letter with a listing sponsor, their indicative timeline, and their track record on prior acquisitions in the roll-up. A buyer serious about listing will have this documentation; reluctance to share it is itself useful information.
Does Malaysian law require specific protections in earn-out agreements?
There’s no earn-out-specific statute, but the terms are enforceable as part of your sale and purchase agreement under general contract law, so precision in drafting matters enormously. Work with a lawyer experienced in M&A structuring, and treat the SPA schedule defining earn-out metrics as being as important as the price clause itself.
What if the buyer refuses to negotiate any of these protections?
That refusal is information. A buyer confident in their numbers and timeline typically has little to lose by agreeing to verification rights, deadlines, and fallback cash conversion. Persistent refusal to accept reasonable protections is one of the clearer signals to slow down and revisit whether this is the right buyer at all.
Structuring a sale that includes deferred or contingent consideration is not something to work through alone against an experienced acquirer’s term sheet. Book a free strategy call with OMO to pressure-test your deal terms before you sign.