A redirected business line turned a milestone payment into a fight

The situation

Just over three million dollars. That was the milestone payment sitting in dispute, the second of two contingent payments built into the sale of Gita, Tamar and Yael's Niagara Falls tourism services company, out of a total transaction value in the eight to fifteen million dollar range. The three had run the company together for over a decade, coordinating tour bookings and hospitality partnerships across the region, starting as a small booking service and growing it into a company with dozens of staff and a loyal base of repeat corporate and group clients. When a larger operator made an acquisition offer, the deal was structured with roughly half of the price paid up front and the balance split across two performance milestones over the following three years, paid out through a contingent value rights arrangement rather than as a straight earnout, a structure the buyer had proposed and the sellers' advisor at the time had accepted without much pushback.

The first milestone had paid out on schedule, roughly on target, and the three sellers had no reason to doubt the second would follow the same path. The milestone was tied to a specific revenue metric within the acquired business line: booking volume for a category of guided tours that had been the company's core product for years and remained, at the time of sale, the single largest source of revenue, accounting for well over half of what the business brought in each season.

Roughly eighteen months after closing, the buyer restructured its broader operations and redirected marketing spend, staffing, and booking priority away from the guided tour category and toward a different segment of its business that the buyer judged more profitable at scale. The guided tour bookings that the milestone depended on fell sharply, not because demand had disappeared, but because the buyer had stopped actively selling that product, reassigning the sales staff who used to promote it and cutting the marketing budget that had driven bookings in the first place.

When the second milestone period closed, the numbers came in well short of target. The buyer's position was straightforward: the metric was the metric, the number had not been hit, and no payment was owed. For Gita, Tamar and Yael, that position ignored the obvious cause — the business they had sold, and the product line the milestone was built around, had been deliberately deprioritized by the very buyer now declining to pay for it, leaving the three women watching a business they had built for over a decade get quietly wound down from the inside while the payment tied to its performance simply evaporated.

What made this urgent

The contingent value rights agreement had been drafted during the original sale, and the seller's accountant at the time had reviewed the financial terms but had not flagged a gap that mattered a great deal once the dispute arose: the agreement said nothing about what would happen if the buyer changed how the underlying business was operated during the earnout period. There was no clause requiring the buyer to maintain the tour category at any particular level of investment, no covenant preventing the buyer from redirecting resources, and no mechanism adjusting the milestone target if the buyer changed course. The accountant had focused, understandably, on whether the milestone dollar figures and the payment schedule made sense on paper, and had not thought to ask what would stop the buyer from simply starving the business line the milestone depended on.

This gap is common, and it is exactly the kind of detail a first advisor focused on the headline purchase price and the payment schedule can miss. A contingent value rights structure only works as intended if the party earning the contingent payment still has some influence, or at least some contractual protection, over the metric the payment depends on. Without that protection, the buyer holds nearly all the leverage during the earnout period: it controls the operations, controls the resource allocation, and therefore controls, in practice, whether the milestone gets hit, all while having every financial incentive to let it fail once the acquired business line stops looking like the buyer's priority.

Time pressure compounded the problem. The milestone period had already closed by the time Gita, Tamar and Yael sought a second opinion, which meant the dispute was not about preventing the redirection — that had already happened — but about establishing, after the fact, that the redirection was the real cause of the shortfall rather than a genuine market downturn or a normal business cycle. The buyer's position, unsurprisingly, was that the shortfall reflected changing market conditions rather than anything it had done, a claim that put the burden on the sellers to prove otherwise using records they did not control.

The urgency was financial as much as strategic. Three million dollars was a meaningful share of the total deal value the three sellers had planned around, and the contingent value rights agreement included a limitations period for raising a dispute over a missed milestone. Letting that period lapse while gathering more information was not an option — the claim had to be built and raised within the window the agreement allowed, even though the underlying facts about why bookings had fallen were still being pieced together from the buyer's own operational records, which the sellers had no automatic right to see without invoking whatever verification mechanism the agreement did provide.

What we did

1. Reviewed the contingent value rights agreement in full to identify what protections actually existed. We confirmed there was no operating covenant tied to the tour category, but also identified a general good faith obligation in how the buyer was to pursue the milestone metrics, which became the foundation for the dispute rather than a specific breach of an operating commitment that did not exist. This step mattered because it set realistic expectations with Gita, Tamar and Yael from the outset about what kind of argument the contract actually supported.
2. Requested the buyer's internal records on the marketing and staffing changes affecting the tour category. Because the agreement gave limited direct inspection rights, we framed this as a request tied to verifying the milestone calculation itself, which the agreement did require the buyer to support with underlying data, and used that route to obtain records showing the scale of the resource shift, including internal budget documents the buyer would not have volunteered otherwise.
3. Built a factual timeline connecting the buyer's operational decisions to the booking decline. We compared the timing of the marketing and staffing redirection against the drop in tour bookings month by month, showing the decline began almost immediately after the redirection rather than tracking any independent market trend, which undercut the buyer's stated explanation and gave the dispute a concrete, dated cause-and-effect story rather than a general suspicion.
4. Assessed whether general market data supported or contradicted the buyer's 'market conditions' explanation. We reviewed publicly available tourism sector information for the relevant period to check whether comparable operators in the guided tour space had seen similar declines. They had not, which weakened the buyer's position that the shortfall was industry-wide rather than specific to its own resource decisions, and gave Gita, Tamar and Yael a second, independent line of evidence to sit alongside the internal timeline.
5. Raised the claim formally within the agreement's dispute window. Given the limitations period built into the contingent value rights agreement, we prepared and delivered a formal notice of dispute well before the deadline, preserving the sellers' right to pursue the claim while negotiations proceeded in parallel. We treated the formal notice as separate and necessary work rather than a step that informal settlement talks could substitute for, because a missed contractual deadline would have ended the claim regardless of how reasonable the underlying facts turned out to be.
6. Opened negotiations grounded in the good faith obligation rather than an operating covenant that did not exist. Rather than arguing the buyer had breached a specific commitment to maintain the tour category, we argued the buyer's near-total defunding of the very metric it was paying against, without any corresponding adjustment to the target, was inconsistent with the good faith standard the agreement did include.
7. Negotiated toward a compromise figure reflecting genuine litigation risk on both sides. We were direct with Gita, Tamar and Yael that the absence of an operating covenant meant a full recovery of the milestone amount was not a safe assumption, and structured the negotiation around a partial recovery that reflected the strength of the good faith argument without overstating it.

The outcome

The dispute resolved as a negotiated compromise rather than a full recovery. The buyer agreed to pay a portion of the disputed milestone amount, well below the full three million dollars originally at stake but meaningfully above the buyer's opening position of paying nothing. Both sides gave something up: the sellers accepted less than the full milestone, and the buyer accepted that its resource redirection had materially contributed to the shortfall, even without conceding a formal breach of contract or admitting the redirection had been done in bad faith.

This was a partial win, not a clean one, and it is worth being direct about why. The gap in the original agreement — no operating covenant protecting the milestone metric — meant Gita, Tamar and Yael never held the strongest possible negotiating position. Had that protection existed in the original drafting, a much larger share of the milestone, potentially the full amount, would likely have been recoverable, and the buyer would have had to either maintain the tour category or pay regardless of what it chose to do with its own operations. The compromise reflected the actual leverage available given the contract as written, not the leverage the sellers might have had with better original drafting, and it is important that the sellers understood that distinction going into the negotiation rather than expecting a full recovery that the contract itself did not support.

For the three sellers, the settlement provided real, near-term value rather than the cost and delay of a longer dispute over a contractual gap that worked against them from the outset. The experience also became a lesson they carried into how they structured a smaller advisory arrangement afterward: any future contingent payment tied to a metric someone else controls needs either an operating covenant protecting that metric, or a target that adjusts if the underlying business changes materially during the earnout period. Gita, Tamar and Yael each said afterward that the biggest surprise of the whole process was learning, only after the fact, how much protection the original agreement could have included but simply did not.

What you can learn from this