Earn-Outs in HVAC Deals: The Structure and the Small Print

The ReasonWork out which risk the earn-out is actually pricing

Three risks generate most earn-outs in this trade, and they are not interchangeable. Owner dependence, where the buyer suspects the business is you. Customer concentration, where one account could leave and take a quarter of the income. And contract renewal, where the maintenance book has never been shown to renew because nobody recorded it. Each has a different fix, and the fix is always cheaper than the earn-out.

That is worth establishing before negotiating the number, because an owner arguing about the percentage deferred is arguing about a symptom. If the earn-out exists because the buyer cannot see a renewal rate, producing two years of renewal evidence does more than any amount of negotiation. If it exists because every quote in the business goes through you, no evidence will help and the deferred element is fair.

It is also worth separating an earn-out from ordinary deferred consideration. Deferred consideration is a fixed sum paid later, and the only risk you carry is the buyer's ability to pay it. An earn-out is contingent on performance, and the risk you carry is everything that happens to the business after it stops being yours.

An owner arguing about the percentage deferred is arguing about a symptom. The question is which risk the earn-out is pricing.

The MetricThe measure matters more than the multiple attached to it

Revenue-based earn-outs are simple to calculate and easy to lose on, because revenue can be moved. Work gets routed to another group company, pricing gets standardised, a division reorganises, and none of it is bad faith. EBITDA-based earn-outs are closer to what the buyer is actually paying for, and considerably more exposed to costs you no longer control: central overhead recharges, new management charges, a different insurance programme.

In a heating or air conditioning business there is often a better measure available, which is contract retention. The proportion of the maintenance book that renews in the earn-out period is directly what the buyer is worried about, it is hard to manipulate from either side, and it is the thing you can genuinely influence during a handover. Where the concern is renewal risk, a retention metric aligns both parties instead of setting them against each other.

Whichever measure is chosen, the accounting policies behind it need to be written into the agreement rather than assumed. An earn-out measured on EBITDA without agreed policies on recharges, overhead allocation and revenue recognition is an argument waiting to happen, and it is an argument you will be having from outside the business.

The ProtectionsFour clauses that decide whether the second payment arrives

Conduct covenants come first. The agreement should require the buyer to run the business in the ordinary course during the earn-out period, not to divert work away from it, not to make recharges that were not in the historical figures, and to give you the information needed to check the calculation. Without them you are relying on goodwill for a payment you have already earned.

Then the mechanics: who prepares the accounts, on what basis, by when, and what happens when the parties disagree. An expert determination clause naming an independent accountant is a paragraph nobody expects to use and the cheapest insurance in the document. Acceleration on a breach or on a sale of the business during the period belongs alongside it.

Your own role during the period is the third, and owners consistently agree to too little authority and too much responsibility. If the payment depends on contract retention, you need to be in front of those customers. If it depends on EBITDA, you need a say in the costs. An earn-out with no operational authority attached is a bet on somebody else's management.

The fourth is tax, and it is genuinely complicated rather than merely tedious. Where the future consideration is unascertainable, the right to receive it is itself treated as an asset at completion, valued then, with a separate gain or loss when the payment arrives. That affects timing, rate and the interaction with Business Asset Disposal Relief, which has been 18% since 6 April 2026 against a 24% main rate. Take advice on the structure before signing, not after.