Last week, in ACON Igloo Holdings, LLC v. Dometic Corporation (Del. Ch.; 9/26), the Chancery Court resolved an earnout dispute arising from Dometic Corporation’s 2021 acquisition of Igloo Acquisition Holdings Corporation (the cooler company) from a private equity firm. This case involved facts similar to the decision I blogged about yesterday, but with a better outcome for the continuing CEO, who discussed but did not pursue actions that might have maximized the earnout at the expense of long-term value.
The agreement contemplated a contingent payment dependent on hitting an EBITDA target by year-end 2022. When it became apparent that Igloo wasn’t going to make the target, its continuing CEO “presented Dometic with a binary choice between strategies he titled ‘Deliver Earnout’ and ‘Optimize Long Term Value.'” (Hm…) At that point, Dometic’s leadership reminded him that “any short-term measures to achieve the earnout had to remain consistent with Igloo’s past practices.”
Eventually, the PE firm seller filed suit alleging that the buyer breached the purchase agreement and the implied covenant “by interfering with Igloo’s ability to operate in the ordinary course during the earnout period.” In a post-trial decision, the Chancery Court disagreed.
To show that Dometic breached the Ordinary Course Covenant, ACON focuses on Vargues’s October 23 email to Allen. ACON contends that the email barred Allen from taking any “short term actions” including “customer campaigns with discounted prices.” “After the email,” Allen was allegedly deprived of “reasonable authority to run the daily operations . . . consistent with the past practices of ACON” because his “team was not permitted to move forward with its planned sales programs and other short-term actions to achieve its EBITDA [t]arget.” ACON’s reliance on this email is misplaced.
This email was not a bar on Allen’s authority to operate Igloo consistently with its past practices before the acquisition. Vargues merely reminded Allen and Peak that the Purchase Agreement required Igloo’s business to be conducted during the earnout period “in the ordinary course of business consistent with past practices.” He further advised them that any short-term measures contradicting the principle stated in the previous sentence (i.e., measures that were not in the ordinary course of business and consistent with past practice) must be approved by Dometic.
The trial record demonstrates that Allen’s proposed measures were not ordinary course actions consistent with past practices. They were last-ditch efforts coordinated with ACON and its counsel to either achieve the earnout through unusual pricing and sales strategies or force a renegotiation. The very titles of Allen’s scenarios—“Deliver Earnout” and “Optimize Long Term Value”—make that plain.
Ultimately, the continuing CEO never implemented the plan to maximize the earnout. From what I can tell, there was talk of shutting down promotions or discounts completely to force a renegotiation of the earnout, but no action on that plan either. So, while the buyer made counterclaims in this case, they were for tortious interference with confidentiality agreements. And while the court agreed that some confidential information was inappropriately shared with the PE firm seller, it also found that the buyer had not proven an injury.
Last week, in In re Saama Technologies Litigation(Del. Ch., 9/26), the Delaware Chancery Court not only rejected a founder’s claim for an earnout payment but also found that he acted in bad faith and breached his fiduciary duties in attempting to maximize the earnout, awarding the defendant buyer $7.3 million in damages for harm the plaintiff caused to its software business. Paul Weiss, which represented the defendant buyer, The Carlyle Group, in the litigation, believes this “is likely the first time a buyer defendant has both defeated earnout claims and won damages on a counterclaim in the Court of Chancery.”
Target company, Saama Technologies, which operated a clinical data platform, was acquired by The Carlyle Group in 2021. Earnout payments were dependent on hitting a revenue threshold and annual recurring revenue bookings that the founder and sellers’ representative knew were difficult to achieve.
After signing the Merger Agreement, Katta accelerated Saama’s strategy to “aggressively win business” and “sell anything by the end of the year” to achieve the earnout. Certain employees were offered “72-27 bonuses” based on their contribution to ARR Bookings. Katta told VP of Customer Success Gondhali that he needed to “aggressively” push the “72-27 goals” or risk being replaced, since Katta needed someone “who [could] drive this upwards and onwards.”
Katta’s plan to achieve the earnout had two main components. First, Saama abandoned its historical pricing discipline […] Second, Katta directed his teams to rewrite contracts to artificially maximize ARR […] [M]any of the […] products sold to customers either did not exist or were in early stage development.
When the earnout statement was received, The Carlyle Group formally objected after PwC’s review questioned the revenue recognition practices reflected in the earnout statement. The business deteriorated post-closing, in part due to the founder’s overcommitments. The founder commenced litigation, and defendants made counterclaims related to the merger agreement’s express terms, the implied covenant and breach of fiduciary duty. As Paul Weiss notes:
Following a five day trial in March 2026 Vice Chancellor Lori Will found that Carlyle’s objection to making the earnout payment was “substantively correct” and made in good faith, and that Katta was “singularly focused on the earnout,” leading him to manipulate contracts, offer unprecedented discounts, and sell products that did not yet exist in pursuit of his goal, “culminat[ing] in an unsustainable trajectory that impaired Saama’s product business.” As the court held, this “was not a flawed business strategy; it was bad faith.” Accordingly, the court entered judgment in Carlyle’s favor on Katta’s claims and granted Carlyle $7.3 million for Katta for his bad-faith efforts to secure the payment.
It makes you wonder whether the founder made himself worse off by filing the lawsuit for the earnout claim. This decision reminds us that earnout disputes may not be purely contractual and that fiduciary obligations underlie a seller’s post-closing conduct when that person continues to manage the business.
Seyfarth Shaw recently published the 12th edition of its “Middle Market M&A SurveyBook,” which analyzes key contractual terms for over 160 middle market (i.e., purchase price of less than $1 billion) private target acquisition agreements signed in 2025 and the first half of 2026. Check out the full survey for info on trends in private target acquisition agreements. For example, they found that earnouts were more common in this latest survey set but the value tied to the earnouts had moderated a bit.
Of the deals surveyed in 2025/2026, 19% included earnouts, as compared to 13% in 2024/2025. In addition, of the deals surveyed in 2025/2026 with earnouts:
– 15% of such deals provided for earnout amounts of 50% or more of the purchase price (as compared to 45% in 2024/2025).
– 67% of such deals provided for earnout amounts between 10% and 50% of the purchase price (as compared to 30% in 2024/2025).
– 18% of such deals provided for earnout amounts less than 10% of the purchase price (as compared to 25% in 2024/2025).
The shift toward earnouts falling between 10% and 50% of the purchase price, rather than 50% or more, suggests that while earnouts became more common in 2025/2026, they are also being structured with more moderate stakes tied to future performance. This is generally a more balanced position for sellers, as it reduces the share of total consideration contingent on post-closing performance while still preserving (and increasing the use of) the earnout as a deal mechanism.
When the FTC issues an HSR Second Request, it may subsequently determine to modify that request if it “determines that a less burdensome request would be consistent with the needs of the investigation.” Last week, the FTC amended Section 2.20(b)(3) of its Rules of Practice to clarify that it may take into account all “relevant factors” in determining whether to modify the request.
The amended rule specifies that relevant factors may include “timing agreement negotiations, the competitive issues involved, the manner in which information and documents are maintained by the recipient, the type of information available to the recipient, the relative burdens to the recipient(s) of producing the requested information, and whether a less burdensome request would be consistent with the needs of the investigation.” This Gibson Dunn memo discussing the amendments offers some key takeaways for dealmakers. These include:
Greater Transparency in Second Request Negotiations. The amended rule codifies factors FTC Staff may consider when negotiating Second Request modifications, providing parties with a clearer framework for engaging with Staff on scope and burden. Notably, the amended rule now expressly states the linkage between modifications and timing agreements—a concept that has long been applied by FTC Staff but had not been codified until now. Parties and their counsel can now point to the enumerated factors—including the relative burden of production and timing agreement negotiations—when advocating for modifications that narrow the scope of a Second Request.
Proactive Engagement with FTC Staff Remains Critical. Parties receiving Second Requests should engage FTC Staff early and proactively regarding the scope of production. The codified factors, particularly those relating to how information and documents are maintained and the relative burdens of production, may provide avenues for productive dialogue about narrowing or tailoring requests.
The memo points out that the amendment applies only to FTC-issued Second Requests, but that it represents a continuation of updates to Second Request procedures by both the FTC & the DOJ. It also notes that substantive standard for the information that the FTC may seek through the Second Request process remains unchanged.
Last month, Meredith blogged about Verisk Analytics v. ExactLogix, (Del. Ch.; 8/26), in which the Delaware Chancery Court held that because a prospective buyer’s actions were the “primary cause” of the FTC issuing a second request that prevented the HSR waiting period from expiring prior to the “drop dead” date, it could not terminate the merger agreement. The Court further ordered the buyer to continue using commercially reasonable efforts to obtain antitrust clearance and to close the transaction if it was obtained.
This Cooley blog says that the decision and the Chancery Court’s approach to the specific performance remedy are sufficient to take specific performance clauses out of the realm of boilerplate and into the boardroom. This excerpt focuses on what the Court did not find regarding the buyer’s conduct in reaching its decision and crafting its remedy, and the implications of that for buyers and their boards:
The striking part is what the court did not find. This was not a classic buyer’s-remorse case where the purported termination was a way to get out of a deal that the buyer regretted post-signing. The court found virtually no evidence that Verisk intended to scuttle the acquisition. Verisk met with the FTC nearly 30 times, hired experienced advisers and lobbyists, and spent almost $8 million responding to the agency.
Verisk lost anyway. Under the language the parties negotiated in the merger agreement, an intentional business decision terminating negotiation of an enhanced integration with a competitor of AccuLynx, was enough to eliminate Verisk’s right to validly terminate the merger agreement if that decision was the “primary cause” of the failed closing condition. This was so, even if that decision was not made in bad faith, not an action constituting a breach of the agreement and not undertaken as a deliberate effort to kill the deal.
For boards and CEOs, that makes Verisk more important than another bad-buyer morality tale. It shows that ordinary post-signing conduct can have extraordinary contractual consequences. A key question that board members should ask their counsel before signing is now: “If the transaction encounters obstacles to closing, what are each party’s continuing performance obligations?” Well-seasoned outside counsel should be able to give precise rationale for each provision’s language and how they interrelate and ensure that the rules of the road between signing and closing are communicated all the way down the chain.