In the midst of an unpredictable market and uncertainty surrounding tariffs, the M&A landscape has been difficult for dealmakers to navigate. High interest rates restrict capital and fuel valuation gaps between sellers and buyers. However, the Fed’s recent rate cuts may increase transaction volume.
Although uncertainty has become the new norm, with change being the only constant, deals continue to close. According to SRS Acquiom’s 2025 M&A Deal Terms Study, which analyzed more than 2,200 private-target deals that closed between 2019 and 2024, 10% of deals in 2024 had transaction values of $750 million or more—up from just 3% in 2023. Additionally, 2024 saw adjustments in transaction structure. All-cash deals continued to increase steadily, with 77% of the deals analyzed in 2024 consisting of solely cash consideration. By contrast, 71% of 2021 deals were all-cash.
SRS Acquiom’s Study identified a notable shift in a transaction term that has increased in popularity as a means of navigating market turbulence— the earnout. An earnout is a contractual provision for the buyer to pay additional consideration if the target company achieves predefined performance metrics. For example, the earnout in a purchase agreement may provide that the seller is entitled to a specified amount of additional consideration if the target reaches or surpasses a certain revenue threshold within a specified time post-closing. Use of an earnout has advantages for both sides: on the one hand, it can help the buyer mitigate against uncertainty over the target’s future performance; on the other hand, it can make it easier for a seller to receive more consideration than if the purchase agreement has a single, fixed purchase price.
Earnouts are common in the life sciences industry (e.g., pharmaceutical and medical device companies), where a target’s value often depends on factors such as successful clinical trials and regulatory approval. But they are not limited to just that industry. Between 2018 and 2023, the percentage of non-life sciences transactions including an earnout increased from 13% to 33%. Notably, however, in 2024, earnouts were included in only 22% of the non-life sciences deals SRS Acquiom studied. Although the prevalence of earnouts remains high compared to pre-pandemic levels, it is too early to tell why fewer deals in 2024 used earnouts. The lower percentage could indicate a greater willingness in buyers to accept target valuations; but the shift, coupled with the increase in high-value transactions, could instead signal a greater emphasis by buyers on high performing targets.
The M&A environment continues to evolve in the face of uncertainty, and, as evidenced by the 2025 M&A Deal Terms Study, parties on both sides of the deal table show a willingness to adapt in response to unique market conditions. If you are considering a merger, acquisition or divestiture and have questions as to how to best structure deal terms, please contact Ben Parks (bparks@gordonarata.com) of Gordon Arata’s commercial transactions team.