The topline purchase price for the sale of an RIA often garners the most attention. However, this figure can be misleading and does not tell the whole story or reveal whether the deal is favorable for the seller or buyer. In this article, we provide a roadmap for understanding how purchase price adjustments and earnouts work when it comes to RIA merger transactions. For a step-by-step guide to understanding RIA merger and sale transactions, click here.

What Are Price Adjustments?

The purchase price announced in a merger or acquisition is not always the amount that the seller ultimately receives. This figure can be subject to various adjustments, which can significantly alter the final payout. These adjustments are typically outlined in the purchase agreement.

Downward adjustments can occur for a variety of reasons. The most common purchase price adjustment occurs when the anticipated post-closing revenues received from clients or earnings of the seller do not live up to buyer expectations based on the pre-closing operation of the seller’s business. The buyer may request a downward purchase price adjustment to reflect a loss of clients, a decline in revenues received from clients, or a decline in earnings from the business acquired after the closing. These downward adjustments can take various forms. Most commonly, the purchase price is adjusted downward based on the shortfall in client count, revenues, or earnings measured over a period of time (such as one or two years after the closing). However, such downward adjustments do not always kick in right away as the buyer and seller may negotiate some leeway to account for minimal attrition following the transaction given that there can be some attrition in the business because of the transition involved after the closing.   

In addition to price adjustments based on client retention, future revenues, or future earnings, other purchase price adjustments can include:

  • Working Capital Adjustments: The purchase price may be adjusted based on the working capital of the business at the time of closing. If the working capital is lower than a predetermined target, the purchase price can be reduced accordingly.
  • Net Asset Adjustments: Similar to working capital adjustments, if the net assets of the business are lower than expected at closing, the purchase price may be decreased.
  • Indemnification Claims: If the buyer incurs losses due to breaches of representations, warranties, or covenants by the seller, the purchase price can be adjusted downward to cover these claims.
  • Contingent Liabilities: If the business has potential liabilities that are contingent on future events, the purchase price may be adjusted to account for these risks.

These adjustments are designed to assure the buyer it has not overpaid for the business should circumstances arise after the closing that result in unexpected losses. For the seller, it means that the headline purchase price is not guaranteed and can be reduced based on various factors as described above. As such, it’s vital for sellers to understand these adjustments when reviewing any deal proposal.  

What Are Earnouts?

The purchase price may not be the only compensation that a seller receives as part of the sale transaction. Sellers can negotiate for earnouts that entitle them to receive additional compensation post-transaction based on milestones agreed upon with the acquiror that typically involve growth in the number of clients or revenues received from clients after the closing of the transaction.

Earnouts can be structured in various ways, such as:

  • Fixed Payments: The seller receives fixed payments if certain performance targets are met.
  • Percentage of Revenue or Profits: The seller earns a percentage of the business’s revenue or profits over a specified period after the closing.

Therefore, sellers that are not satisfied with the purchase price being offered by an acquiror can request for the deal to include an earnout that allows the seller to receive more compensation if the mutually agreed-upon targets or milestones are achieved by the seller.


While the headline purchase price in an RIA merger transaction may seem like the most important term in the deal, it’s essential to look beyond this number. Purchase price adjustments and earnouts play significant roles in determining the true value of the deal for the seller and buyer. As a result, buyers and sellers should arm themselves with the tools appropriate to negotiate the best deal possible and retain advisors who can help them navigate these negotiations to best suit their needs.

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