Earnouts are now representing a growing proportion of potential deal value in life sciences transactions, with an increased portion linked to clinical, regulatory and commercial achievements. This evolution is prompting more thorough discussions regarding post-closing operations and performance expectations. As a larger segment of deal value hinges on post-closing results, sellers encounter heightened uncertainty about future payments, while buyers pursue operational flexibility.
Greater Reliance on Contingent Payments
Disagreements regarding the achievement of milestones can endanger substantial deal value and heighten the likelihood of conflicts. Both parties should address earnout discussions at an early stage, ensuring performance milestones and post-closing expectations are explicitly defined. Customized structures can help balance risk, accommodate partial progress, and minimize the chance of expensive disputes.
Earnouts have emerged as a hallmark of life sciences M&A activity, where deal value frequently depends on clinical, regulatory and commercial milestones. With nearly half of recent diagnostics and research technology acquisitions and over 90% of biotech and pharmaceutical deals featuring earnouts,1 understanding their complexities is increasingly critical for biotech executives, founders, investors and deal teams handling transactions today. As market uncertainty persists, several key earnout trends are shaping how life sciences deals are being structured and negotiated.
Valuation Discipline and Deferred Risk
DealForma reports that total disclosed value and average deal volume for global healthcare and life sciences R&D partnerships rose significantly in 2025, while upfront cash and equity contributions lagged behind — suggesting parties may be directing more deal value toward contingent, milestone-based payments.2 This trend also points to a more cautious stance by buyers. Instead of fully pricing future upside at signing, buyers are postponing value and linking it to performance. In industries where outcomes rely on regulatory milestones and commercialization success, shifting more consideration to the latter stages of a deal is making earnouts a fundamental part of transaction economics.
Risk Shifting to Sellers
As earnouts become more back-loaded, a larger share of the overall deal value depends on future outcomes such as regulatory approval, development timelines, and market entry capabilities. Practically, this means greater risk is transferred to sellers: requiring them to vouch not only for the asset’s strength but also for a potential commercialization pathway.
These same patterns create a ripple effect on the negotiation process, deal timelines, and post-closing alignment. As an expanding share of deal value is distributed over multiyear periods, the economic lifespan of the transaction, and the relationship between buyer and seller, extends well beyond closing. This has prompted more detailed dialogue about post-closing operations and a stronger emphasis on aligning expectations at signing.
Operational Alignment and Dispute Prevention
For instance, as greater value relies on future performance, sellers may demand greater clarity on operational choices influencing performance, including requests for specificity about post-closing business management. Buyers, meanwhile, may seek to preserve operational flexibility and manage potential payout exposure.
Consequently, earnout negotiations can become more detailed and time-consuming than in previous years, particularly when both parties perceive negotiating leverage. While earnouts remain a practical tool for bridging valuation gaps in life sciences transactions, their expanding role and frequent use across both private equity and strategic deals inevitably introduce complexity and tension into post-closing relationships. How this complexity is managed increasingly determines whether an earnout delivers value or becomes a conflict source.
The challenge is no longer simply whether to use an earnout, but how to design one to properly allocate risk, maintain alignment, and reflect the practical realities of developing and commercializing life sciences assets over time. By addressing them proactively and negotiating tailored structures, both sellers and buyers can confidently maximize their value while minimizing disputes.
