Earn-out disputes after closing: step by step, move through four stages under Swedish practice: an earn-out statement from the buyer, an objection window for the seller, direct negotiation, and escalation to the mechanism the contract specifies, usually an independent expert or arbitration. Missing the objection deadline typically forecloses any challenge to the calculation.
Who this concerns
Earn-out disputes surface in mid-market and cross-border acquisitions where part of the purchase price is deferred and tied to the target's post-closing performance. The buyers most exposed are strategic acquirers and private equity sponsors who took operational control at closing and now run the metric the earn-out is measured against. The sellers most exposed are founders and management teams who stayed on as employees or consultants after closing, whose payout depends on decisions the buyer now controls: budget allocation, product mix, and which customers or contracts get pursued.
This sits within the wider contracts and transactions practice at the specific point where a deferred consideration structure, negotiated cooperatively at signing, turns adversarial after closing.
The dispute rarely starts as a legal dispute. It starts as a disagreement over a spreadsheet: the buyer's finance team produces an earn-out statement, the seller's advisers find the numbers inconsistent with what was agreed at signing, and both sides start reading the SPA to see who has the stronger textual position. By the time a lawyer is engaged, the working relationship between the parties, often still colleagues under the same roof, has usually already deteriorated.
Minority sellers who hold a residual stake alongside the earn-out face an added complication: raising a formal dispute about the calculation can affect how the buyer treats them as a continuing shareholder or employee, so sequencing matters as much as the legal merits.
What the law says
Under Swedish law as it currently stands, an earn-out dispute is decided first and mostly by the contract. Swedish contract law gives the parties wide latitude to define how the earn-out metric is calculated, how disagreements are escalated, and which forum decides them, whether that is an independent accountant acting as expert, an arbitral tribunal, or the general courts. Statutory rules on interpretation of contracts apply only where the SPA is silent or genuinely ambiguous, and Swedish courts and arbitrators read earn-out clauses restrictively: they will not rewrite a calculation mechanism the parties negotiated, even where the outcome looks harsh to one side.
Two general principles recur regardless of what the SPA says expressly. The first is a duty of loyalty between contracting parties in an ongoing relationship, which in the earn-out context translates into an obligation on the buyer not to take deliberate action, diverting revenue, changing accounting policy, restructuring the business, for the purpose of suppressing the earn-out metric. The second is an information duty: a party that controls the data underlying the calculation, almost always the buyer, cannot rely on a contractual deadline that the other party had no realistic ability to meet because the underlying books and records were withheld or incomplete.
Where the buyer, the seller, or the target company sits outside Sweden, the analysis changes on three points. First, the governing law and forum clause in the SPA controls which country's procedural rules apply to the dispute process itself, not only to the substantive calculation. Second, currency conversion mechanics for the earn-out payment need to be fixed in the contract; absent an express clause, disputes about the applicable exchange rate and its reference date become a second dispute layered on top of the first. Third, service of an objection notice or a request for expert appointment on a foreign counterparty must follow whatever notice clause the SPA contains, and domestic assumptions about how service works do not carry over.
How it works in practice
Step 1: the buyer delivers the earn-out statement
The clock starts when the buyer sends the earn-out statement together with the supporting financial schedules the SPA requires. The statement should state the metric achieved, the resulting payment, if any, and the calculation methodology applied. A statement that omits the underlying schedules, or that changes the accounting policy used at signing without explanation, is a common first sign of dispute.
Step 2: the seller's review and the objection window
The seller then has the review period fixed in the SPA to examine the statement and raise objections. This is the single most consequential deadline in the whole process. A seller who misses it typically loses the right to challenge the calculation on the merits, regardless of how strong the underlying argument is. The objection should be specific: a general statement of disagreement is weaker than a line-by-line challenge tied to the contractual definition of the metric.
Step 3: access to books and records
Before an objection can be drafted properly, the seller needs access to the accounts, management reports, and any board materials relevant to the metric. Buyers sometimes resist this on confidentiality grounds. Whether the SPA gives the seller an enforceable access right, and how broad it is, usually decides how strong the seller's position becomes at the next stage.
Step 4: direct negotiation between the parties
Most SPAs require a period of direct negotiation, often at a senior level distinct from the operational team that produced the statement, before either side can escalate further. This stage resolves a meaningful share of earn-out disputes, because it forces both sides to weigh what litigation or expert determination would cost against what is actually in dispute.
Step 5: escalation to an independent expert
Where the SPA provides for expert determination, either party can refer the unresolved items to an independent accountant or valuer named or appointed under the contract's mechanism. The expert's brief is normally limited to the specific disputed line items, not the whole statement, and the decision is typically final and binding on those items absent manifest error or fraud, grounds that are difficult to establish in practice.
Step 6: arbitration or litigation as a last resort
Disputes outside the scope of the expert clause, or arising after an expert determination has itself been challenged, go to whatever forum the SPA's dispute resolution clause designates. Swedish-seated arbitration is common in cross-border deals for confidentiality and enforceability reasons; the general courts remain available where the SPA provides no arbitration clause, or where interim relief is needed faster than a tribunal can be constituted.
What to check before objecting
- The exact definition of the earn-out metric in the SPA, including any carve-outs for one-off items, checked against the metric actually used in the statement.
- The accounting policies applied to the statement against the policies in force at signing, and any permitted or required changes between the two dates.
- Whether the buyer took any action after closing that plausibly affected the metric: reallocating shared costs, changing transfer pricing, redirecting a customer relationship to another group entity.
- The precise wording of the objection deadline and how it is triggered: delivery of the statement, receipt of the statement, or a fixed calendar date.
- Any set-off clause allowing the buyer to reduce the earn-out payment against a separate warranty or indemnity claim, and whether that claim was actually notified in the form the SPA requires.
- The scope of the expert determination clause: which disputes it covers, whether it is mandatory before arbitration, and whether the decision is final on quantum, on liability, or both.
Frequently asked questions
When does the objection window start running: delivery of the statement or the seller's actual receipt of it?
The trigger is whichever event the SPA's notice clause defines, and the two are not the same thing. A clause running from delivery starts the clock on dispatch by the specified method; a clause running from receipt starts it on confirmed delivery to the seller. Confusing the two is a common way to miscalculate a deadline that then cannot be recovered.
Can the buyer withhold the earn-out payment against an unrelated warranty claim?
Only if the SPA's set-off clause allows it, and only to the extent the underlying claim has been notified in the form and within the time the warranty provisions require. A set-off asserted without a properly notified claim behind it is itself open to challenge.
Is an expert determination decision final, or can it still go to arbitration afterwards?
That depends entirely on how the expert clause is drafted. Most clauses make the expert's decision final and binding on the specific items referred, subject only to challenge for manifest error or fraud, which excludes a straightforward disagreement with the expert's judgment on a genuinely disputed accounting question.
The numbers
There is no statutory clock that runs independently of the SPA in an earn-out dispute; the relevant deadlines are the ones the parties fixed in the contract. Three categories matter in practice: the objection window that starts running once the earn-out statement is delivered, the period allowed for expert appointment once negotiation has failed, and the general limitation period for contractual claims, which runs from the point the claim could first have been asserted and applies as a backstop even where the SPA's own deadlines were observed.
Because these deadlines are contractual rather than statutory, they vary between transactions, and a deadline calculated from the wrong trigger date is one of the more common technical defects in an objection. The trigger is usually delivery of the statement, not the underlying event the statement reports on, and delivery itself may be defined by reference to a notice clause requiring a specific method, registered post or email to a named address, rather than any method the sender finds convenient.
Where it usually goes wrong
The mechanism above assumes an SPA that actually specifies the metric, the calculation method, and the dispute route with reasonable precision. Where that assumption fails, the analysis changes.
Ambiguous metric definitions are the most frequent source of genuine, rather than tactical, disputes. An earn-out tied to "EBITDA" without a defined set of adjustments invites two competing calculations that are each internally consistent, and neither of which is clearly wrong under the contract's own wording. In that situation an expert determination clause becomes far more valuable than it looks at signing, because it gives a route to a binding answer without asking a court to choose between two plausible readings of an undefined term.
Buyer conduct that affects the metric without breaching any express clause is harder to remedy than conduct that breaches one. A buyer that simply runs the business differently after closing, cutting a marketing budget, discontinuing a low-margin product line, integrating the target into shared services, is usually acting within its rights as owner unless the SPA contains an express operating covenant restricting exactly that conduct during the earn-out period. Sellers who negotiate the SPA without such a covenant frequently discover only after closing that the buyer's ordinary business decisions have suppressed the metric without giving rise to any claim.
Set-off between a warranty claim and the earn-out payment turns a calculation dispute into a two-front dispute, because the seller now has to defend the underlying warranty claim to preserve the earn-out payment, often on a compressed timeline set by the earn-out clause rather than the more generous timeline that might otherwise apply to warranty claims generally.
Where the target or a group entity sits outside Sweden and the buyer has since restructured the group, obtaining the records needed to verify the statement can become a jurisdictional exercise in itself, requiring cooperation from an entity that is no longer under any contractual obligation running directly to the seller.
What to do next
The steps above cover what a seller or a buyer can verify and argue without outside help: whether the objection deadline was correctly calculated, whether the metric definition actually supports the statement issued, and whether any set-off has a properly notified claim behind it. Where the dispute turns on interpreting an ambiguous metric definition against the buyer's post-closing conduct, or on assessing whether a set-off notice meets the SPA's formal requirements, that is where a documents-based assessment of the position becomes worth commissioning before an objection deadline is spent on the wrong argument.
Disputes that follow the termination of a distribution or agency agreement run through a comparable sequence of notice periods, objection windows, and escalation clauses, and the same discipline about calculating deadlines from the correct trigger applies there as well.
Where the position needs to be tested against the actual SPA wording and the statement issued, book an assessment of the calculation and the deadline position before deciding how to respond.