Learn how earn-out agreements work in Turkish business acquisitions. Discover earn-out structures, payment mechanisms, accounting disputes, tax considerations, buyer and seller protections, and key drafting strategies in this 2026 Updated Legal Guide.

Earn-out agreements have become an increasingly common feature of mergers and acquisitions (M&A) involving Turkish companies, particularly where the buyer and seller cannot agree on the target company’s value. Instead of paying the entire purchase price at closing, the parties agree that part of the consideration will be paid later if the business achieves specified financial or operational targets after completion.

Earn-outs are especially popular in acquisitions involving technology companies, software businesses, healthcare providers, manufacturing companies, e-commerce platforms, start-ups, logistics businesses, and family-owned enterprises. They allow buyers to reduce valuation risk while giving sellers the opportunity to receive additional consideration if the business performs as expected.

Although Turkish legislation does not contain detailed provisions specifically regulating earn-out mechanisms, the principle of freedom of contract under the Turkish Code of Obligations allows parties to structure deferred purchase price arrangements, provided they comply with mandatory legal rules and public policy.

This 2026 Updated Legal Guide explains how earn-out agreements work in Turkish business acquisitions, the principal legal issues foreign investors should consider, and the contractual provisions necessary to minimize post-closing disputes.

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What Is an Earn-Out Agreement?

An earn-out is a contractual arrangement under which a portion of the purchase price becomes payable only if the acquired business satisfies agreed performance targets after closing.

Typically:

• A fixed amount is paid at closing.
• An additional amount becomes payable if specified milestones are achieved.
• Payment depends upon objectively measurable criteria.

Earn-outs bridge valuation gaps where future business performance is uncertain.

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Why Are Earn-Outs Used?

Earn-outs help resolve disagreements concerning valuation.

Typical situations include:

• High-growth technology companies.
• Start-ups with limited operating history.
• Businesses dependent on key management.
• Rapidly expanding companies.
• Companies entering new markets.
• Businesses affected by temporary market conditions.

Rather than debating future performance, the parties allow future results to determine part of the purchase price.

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Common Earn-Out Structures

Earn-outs may be based upon:

• Revenue.
• EBITDA.
• Net profit.
• Gross profit.
• Customer growth.
• Subscription numbers.
• Sales volume.
• Market share.
• Regulatory approvals.
• Product launches.
• Completion of development milestones.

The chosen performance indicator should be objective, measurable, and clearly defined.

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Fixed vs Variable Earn-Outs

Fixed Formula

Payment follows a predetermined mathematical calculation.

For example:

• Percentage of EBITDA.
• Percentage of annual revenue.
• Multiple of recurring income.

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Variable Formula

Payment depends upon achieving negotiated milestones.

Examples include:

• Obtaining regulatory licenses.
• Launching new products.
• Winning specified commercial contracts.
• Reaching customer acquisition targets.

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Typical Earn-Out Period

Most earn-outs operate for:

• 12 months.
• 24 months.
• 36 months.

Longer earn-out periods generally increase commercial uncertainty and the likelihood of disputes.

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Accounting Issues

Accounting methodology is one of the most common sources of disagreement.

The SPA should specify:

• Applicable accounting standards.
• Accounting policies.
• Revenue recognition rules.
• Expense allocation.
• Extraordinary items.
• Currency conversion.
• Treatment of one-off costs.
• Depreciation methods.
• Related-party transactions.

Without detailed accounting provisions, earn-out calculations frequently become contentious.

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Operational Control After Closing

Once the acquisition is completed, the buyer normally controls the business.

This creates potential conflicts because operational decisions may affect earn-out performance.

The SPA should address:

• Business continuity.
• Budget approval.
• Capital expenditure.
• Pricing strategy.
• Marketing expenditure.
• Employee dismissals.
• Customer relationships.
• Integration with the buyer’s group.

The parties should determine whether the buyer is obliged to operate the business consistently with past practice during the earn-out period.

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Good Faith Obligations

Turkish contract law requires parties to perform contractual obligations in accordance with the principle of good faith.

In the context of earn-outs, parties should avoid conduct intentionally designed to manipulate performance calculations or defeat the agreed commercial purpose.

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Seller Protections

Sellers commonly negotiate:

• Minimum operational commitments.
• Restrictions on extraordinary transactions.
• Access to financial information.
• Audit rights.
• Participation in management.
• Consultation rights.
• Earn-out reporting obligations.
• Independent accountant review.

These provisions help ensure transparency during the earn-out period.

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Buyer Protections

Buyers often negotiate:

• Flexibility to manage the business.
• Exclusions for extraordinary events.
• Protection against manipulation by former owners.
• Clear accounting methodology.
• Defined calculation procedures.
• Confidentiality obligations.
• Non-compete clauses.
• Non-solicitation obligations.

The buyer should retain sufficient operational flexibility while minimizing disputes over earn-out calculations.

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Access to Financial Information

The agreement should determine whether the seller may receive:

• Monthly financial statements.
• Quarterly management accounts.
• Budget reports.
• Sales reports.
• Customer statistics.
• Audit reports.
• Accounting records.

Transparency significantly reduces future disagreements.

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Independent Expert Determination

Many SPAs provide that accounting disputes will be resolved by an independent accounting expert.

The agreement should specify:

• Appointment procedure.
• Scope of review.
• Binding effect.
• Allocation of costs.
• Timetable.

Expert determination often resolves technical disputes more efficiently than litigation.

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Tax Considerations

Earn-outs may have significant tax consequences.

Issues requiring professional advice include:

• Capital gains taxation.
• Corporate income tax.
• VAT implications where applicable.
• Withholding taxes.
• Foreign currency payments.
• Timing of tax recognition.

The tax treatment depends on the structure of the transaction and should be evaluated before signing.

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Earn-Out and Warranties

Earn-outs do not replace:

• Representations.
• Warranties.
• Tax indemnities.
• Litigation indemnities.
• Environmental indemnities.

These contractual protections remain essential regardless of the deferred payment structure.

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Default and Non-Payment

The SPA should specify:

• Payment deadlines.
• Default interest.
• Security arrangements.
• Escrow mechanisms.
• Bank guarantees.
• Parent company guarantees.
• Set-off rights.
• Enforcement procedures.

A seller should not rely solely on the buyer’s future financial position.

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Dispute Resolution

Common earn-out disputes involve:

• Accounting methods.
• Revenue calculations.
• Extraordinary expenses.
• Management decisions.
• Customer allocation.
• Working capital adjustments.
• Good faith obligations.

The SPA should clearly specify whether disputes will be resolved through:

• Turkish courts.
• Arbitration.
• Expert determination.
• Mediation where appropriate.

Clear dispute resolution clauses reduce uncertainty.

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Common Drafting Mistakes

Parties frequently:

• Use vague performance targets.
• Ignore accounting methodology.
• Fail to define EBITDA.
• Overlook operational control.
• Omit reporting obligations.
• Ignore tax consequences.
• Fail to provide expert determination.
• Use generic SPA templates.

These drafting errors frequently lead to post-closing litigation.

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Best Practices

Well-structured earn-out clauses should:

• Use objective financial metrics.
• Define accounting policies precisely.
• Establish reporting procedures.
• Allocate operational responsibilities.
• Include audit rights.
• Specify dispute resolution mechanisms.
• Coordinate with warranty provisions.
• Address tax treatment.

Careful drafting significantly improves certainty.

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Why Professional Legal Assistance Is Essential

Negotiating earn-out provisions requires expertise in:

• Turkish contract law.
• Corporate law.
• Mergers and acquisitions.
• Accounting principles.
• Tax law.
• Commercial litigation.
• Arbitration.
• Financial due diligence.

An experienced Turkish M&A lawyer can:

• Draft enforceable earn-out provisions.
• Coordinate accounting and legal teams.
• Negotiate buyer and seller protections.
• Allocate operational responsibilities.
• Reduce post-closing disputes.
• Structure payment mechanisms.
• Protect commercial interests throughout the earn-out period.

Well-drafted earn-out clauses often determine whether the deferred purchase price mechanism functions smoothly or becomes the source of lengthy commercial litigation.

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Frequently Asked Questions

1. What is an earn-out agreement?

An earn-out agreement provides that part of the purchase price will be paid after closing if the acquired business achieves agreed financial or operational targets.

2. Are earn-out agreements valid under Turkish law?

Yes. Turkish law generally allows parties to structure deferred purchase price mechanisms under the principle of freedom of contract, provided they comply with mandatory legal rules.

3. Which financial metrics are commonly used?

Revenue, EBITDA, net profit, gross profit, customer growth, subscription numbers, and operational milestones are among the most common performance indicators.

4. Why do earn-out disputes occur?

Most disputes arise from unclear accounting rules, undefined financial metrics, operational control issues, reporting obligations, or disagreements regarding post-closing management decisions.

5. Should the seller have access to financial information?

Yes. Regular reporting, audit rights, and access to relevant financial information significantly improve transparency and reduce disputes.

6. Can accounting disputes be resolved by an independent expert?

Yes. Many SPAs provide for expert determination by an independent accountant before resorting to litigation or arbitration.

7. Do earn-outs replace warranties and indemnities?

No. Earn-outs determine deferred purchase price, while warranties and indemnities allocate responsibility for hidden liabilities and pre-closing risks.

8. Why should foreign investors hire a Turkish M&A lawyer?

A Turkish M&A lawyer can draft clear earn-out provisions, coordinate legal and accounting issues, negotiate effective protections, minimize post-closing disputes, and ensure that the deferred consideration mechanism complies with Turkish law.

Legal Support – Contact Our Corporate and M&A Lawyers

Earn-out mechanisms can create value for both buyers and sellers when they are carefully drafted and supported by clear accounting rules, reporting obligations, and dispute resolution procedures. Without proper legal planning, however, they are among the most common sources of post-acquisition litigation.

Fırat Fesih Kaya and our legal team advise foreign investors, multinational corporations, private equity funds, entrepreneurs, family offices, and international businesses on mergers and acquisitions, earn-out agreements, share purchase agreements, legal due diligence, transaction structuring, warranty negotiations, corporate governance, commercial disputes, and arbitration throughout Turkey.

Phone: +90 312 434 22 22

Mobile: +90 532 769 22 22

Email: info@firatfesihkaya.av.tr

Address: Mevlana Boulevard No:221, Yıldırım Tower, Office No:148, 06520 Balgat, Çankaya, Ankara, Turkey