A floor clause caught the gap her first advisor missed

The situation

Eleven days before the signing deadline, Fiona called our office with a folder of documents her original advisor had prepared and a question she could not shake: what actually happened to the second half of her payment if the buyer's business did not perform the way everyone hoped.

Fiona had spent close to twenty years building a horticultural supply company outside Napanee, starting with a single greenhouse and her own seasonal labour, filling orders herself before the business could afford to hire anyone else. Some winters she took on other seasonal greenhouse work nearby just to smooth out the cash flow while the company grew. By the time she was ready to sell, that patience had turned into a business worth several million dollars, one she had never taken outside financing to build.

She had agreed in principle to sell to Angela and Devon, two operators looking to expand into the region. Devon had spent years working as a bookkeeper before moving into acquisitions, which showed in how carefully the contingent value mechanics had been put together on the buyers' side, for a price in the mid single-digit millions. Roughly half of that price was payable at closing, money Fiona could count on the day the deal signed. The rest was structured as a contingent value right, an arrangement where the seller only receives the remainder if certain future results are met, rather than being paid the full price up front.

The trouble was that the contingent value rights had been drafted by Fiona's first advisor, a pricing consultant she had hired early in the process to help her understand what the business was worth and how to present it to buyers. He was genuinely good at that part. What he was less comfortable with was the legal mechanics of how a deferred payment actually gets earned or lost once the ink is dry, and the draft he had negotiated on her behalf measured the payout against the buyer's future revenue from the combined operation, a number Angela and Devon would control entirely once the deal closed.

Fiona had not caught the gap herself. Contract language of that kind reads, to a non-lawyer, like ordinary caution rather than a hidden risk. She only came to us because a friend who had been through a sale years earlier told her, almost in passing, to have the earn-out language checked by someone whose only job was the legal side of the deal before she signed anything. With the deadline closing in and Angela and Devon expecting to move forward on schedule, there was very little room left to negotiate a structural change without either side walking away from a deal both had already committed to in principle.

What the other side was relying on

Once we reviewed the draft, the shape of the problem was clear. The contingent value right tied Fiona's second payment to revenue the combined business generated in the two years after closing, measured entirely from Angela and Devon's own books, with no minimum payout regardless of the reason revenue came in low. On the page it looked balanced, an earn-out tied to results rather than a guess. In practice it handed the buyers almost complete control over whether Fiona's second payment ever arrived.

That mattered because revenue in a combined business is not a neutral number that simply happens. Angela and Devon would be making every operating decision after closing: what product lines to keep running as Fiona had run them, what to fold into their existing operations, how aggressively to price against competitors, how much to reinvest in the acquired lines versus their own. None of those choices were unreasonable on their own. A buyer is entitled to run the business it just bought. But every one of those ordinary choices could reduce the revenue figure the payout depended on, without anyone doing anything that looked like bad faith or breach.

The buyers were not hiding this, which was actually useful to know. When we raised it directly with their side, their response was candid: the structure protected them from paying a premium for growth that might not materialize, and a straight revenue test was simpler to administer than something tied to a specific product line, a named customer list, or a defined set of contracts. That is a legitimate commercial position, and we said so to Fiona plainly, because pretending the other side was acting in bad faith would have wasted the limited time left before signing. What made the structure a problem for Fiona specifically was that her own advisor had accepted it without asking the one question that mattered: what happens at the bottom end. If the combined business underperformed for reasons that had nothing to do with the value Fiona had spent twenty years building, the agreement as drafted let her second payment shrink toward nothing, and there was no mechanism in the document to stop that.

We also noticed a second, smaller gap that compounded the first. The trigger language measured results only at a single date at the end of year two, with no interim check-in along the way and no defined method for verifying the buyer's revenue reporting once the two years were up. That combination, a single measurement point with no floor and no audit right, is what let the risk sit almost entirely on Fiona's side of the ledger while looking, on paper, like an ordinary and fair earn-out.

What we did

1. Reviewed the contingent value rights language against the full purchase agreement, not just the schedule where it was written out, to see how the deferred payment interacted with the rest of the deal. A floor negotiated in isolation can still be undermined by an indemnity clause or a working capital adjustment sitting somewhere else in the document, so we read the whole thing as one system before proposing any changes.
2. Identified the missing floor as the deal's central risk and walked Fiona through it in plain terms over a single phone call, using a simple example: if the combined business generated no measurable revenue growth at all in two years, her second payment as drafted could be close to zero, and nothing in the agreement said otherwise. She needed to understand that before deciding how hard to push back with the timeline as tight as it was.
3. Proposed a guaranteed minimum payout equal to a meaningful share of the deferred amount, payable to Fiona regardless of what the combined business's revenue came in at, so that ordinary post-closing business decisions by Angela and Devon could no longer erase her entitlement entirely, only reduce the portion above the floor. We benchmarked the floor against a straight discount on the deferred portion, which showed Angela and Devon it was a reasonable middle ground rather than a one-sided demand.
4. Added an audit right over the revenue calculation so that when the two-year measurement date arrived, Fiona's side could request and review the underlying figures rather than relying solely on a number produced by the buyer's own accounting department with no way to check it. The right included access to the relevant ledgers and a mechanism for an independent accountant to resolve any disagreement over the calculation, so a dispute over the number would not simply come down to Fiona's word against the buyer's.
5. Negotiated an interim measurement point at the one-year mark alongside the final measurement at two years, so Fiona would see roughly how the earn-out was tracking well before the final number was locked in, rather than finding out everything at once at the end with no time to raise concerns. That interim figure gave her the option to raise questions, request supporting detail, or plan her own finances around a realistic estimate, instead of waiting two full years for a single final number she would have no ability to influence.
6. Coordinated directly with the buyers' counsel on the compressed timeline, prioritizing the floor and the audit right as the two changes we treated as essential, and flagging the interim checkpoint as the item we were prepared to trade away if the other side pushed back hard, so the negotiation stayed focused rather than sprawling across every clause in the eleven days available.
7. Confirmed the final signed language matched what had actually been negotiated, checking line by line that the floor, the audit right and the interim checkpoint all appeared consistently across both the main purchase agreement and the separate schedule setting out the contingent value mechanics, since a mismatch between the two documents would have reopened exactly the ambiguity we had just closed.

The outcome

The deal closed on the original schedule with the revised contingent value structure in place. Angela and Devon agreed to the floor and the audit right without reopening the purchase price itself, and the interim checkpoint was accepted with a minor adjustment to how the calculation would work, a small concession that cost neither side much and gave Fiona real visibility she would not otherwise have had.

Roughly eighteen months later, the combined business underperformed the original revenue projections, driven mainly by a decision Angela and Devon made to consolidate two product lines that had previously generated separate revenue under Fiona's ownership. That consolidation was a reasonable business call on their part, made for reasons that had nothing to do with Fiona or the quality of what she had sold them. Under the original draft her first advisor had negotiated, that single decision could have reduced Fiona's second payment close to nothing, through no fault on either side. With the floor in place, she received the guaranteed minimum in full, on schedule, without a dispute.

Fiona later asked whether her first advisor had done anything wrong by missing the gap. The honest answer was that pricing consultants are trained to value a business, not to read contingent payment mechanics the way transactional lawyers are, and the two skills do not automatically overlap even when the same person is handling the whole sale process. The lesson she took from it, and the one she has since passed on to two other business owners in the area who were preparing their own sales, was to have deferred payment terms checked specifically by someone whose only job is the legal mechanics, before signing, not after a friend happens to mention it in passing. The floor did not change the price of her business. It changed what she was guaranteed to actually receive, and that turned out to matter.

What you can learn from this