Earn-Outs in Moroccan M&A

An earn-out is a way of not fixing the whole price at signing. Instead of agreeing a single number, the parties agree that part of the consideration for the Moroccan company becomes payable to the seller after closing, in an amount — or an entitlement — that depends on how the business performs over a defined period, or on an agreed future event. The buyer pays a firm amount now and a contingent amount later, if and to the extent the agreed performance is achieved. Its usual purpose is to bridge a valuation gap: the seller believes the business will perform, the buyer is not yet convinced, and the earn-out lets the future decide.

Under Moroccan law the mechanism is primarily contractual. There is no standalone statutory earn-out regime; what makes an earn-out work is the freedom of the parties to agree it, read against the general rules of the Dahir des obligations et des contrats (DOC). Two of those rules matter throughout: the price must be determined or at least determinable by an objective method, and an obligation cannot be left to depend on the bare will of the person who owes it. Both point in the same direction — the contingent amount should be fixed by an objective formula, not by the buyer's unfettered choice.

Before going further it is worth separating an earn-out from three things it is often confused with, each treated below. It is not deferred fixed consideration (an amount already settled, merely paid later). It is not a completion-accounts adjustment, which re-measures the price against the company's financial position at completion, not its future performance. And it is not an indemnity, which allocates loss rather than paying consideration. This guide is informational, provides no template, and describes no service.

Yes, as a matter of contract, subject to how it is drafted. Moroccan law does not define, require or specially regulate earn-outs, but it does allow the parties to structure the consideration freely: under article 230 of the DOC, obligations validly formed have the force of law between the parties. An earn-out is one such freely agreed term. Saying that, however, is only the start: because it is a creature of contract, an earn-out is only as sound as the drafting that gives it effect, and Moroccan law sets limits that a badly designed earn-out can run into.

The two limits worth stating up front are the ones the rest of this guide keeps returning to. The first is about the price: Moroccan sale law requires the price to be determined or determinable, which controls whether a formula-based future amount is valid. The second is about the obligation to pay: an obligation whose existence is left to the bare will of the debtor is void, which controls how far the buyer's post-closing discretion can be allowed to touch the payment. Neither limit forbids earn-outs; both shape how they must be built.

It also helps to be honest about frequency. There is little Morocco-specific evidence about how often earn-outs are used in Moroccan deals, and this guide does not claim they are standard or common here. What can be said is that they are a well-established tool in international M&A practice, that a Morocco-governed acquisition may adopt one, and that whether an earn-out suits a particular deal is a commercial and drafting question, not a matter of Moroccan law requiring or preferring it.

This is the first core legal question, and it is more subtle than it looks. Article 487 of the DOC provides that the price of a sale must be determined; that its determination cannot be referred to a third party, nor can one buy at the price paid by a third party, unless the price was known to the contracting parties; while allowing the parties to refer to an objective external measure such as a set tariff or an average market price. The settled reading is that the price need not be a fixed number at signing so long as it is determinable — capable of being fixed later by applying an agreed, objective basis without a fresh agreement of the parties.

An earn-out fits that framework only if it is built as a determinable price. The safer contractual approach is to specify an objective method — the metric, the accounting rules for measuring it, the period, and the reference figures — so that the contingent amount can be calculated mechanically once the future facts are known. Where the contract does that, the later amount is determinable, not indeterminate. Where it instead leaves the amount to be agreed later, or to one party's judgement, it creates real risk that the price element is not validly determined.

Five situations that are easy to blur must be kept apart, because they are not the same. A future amount calculated mechanically under an agreed formula is determinable. A future amount that depends on objective performance or events, measured under agreed rules, is determinable. A third party who calculates the amount by applying an already agreed methodology is applying an objective basis. But a third party who freely decides what the price should be, and a buyer who has unrestricted discretion over whether or how much to pay, are different in kind — and it is a mistake to treat the French rule that lets a third party set the price as if it stated Moroccan law. Under article 487 the determination is not simply handed to a third party; it rests on the objective basis the parties agreed.

The second core legal question concerns the obligation to pay. Article 112 of the DOC provides that an obligation is void where the very existence of the bond depends on the bare will of the person who owes it (a purely potestative condition). The phrase to hold onto is bare will: the vice is an obligation whose existence the debtor can simply choose to bring about or not, not any obligation that a party can influence.

The relevance to earn-outs is real but must not be overstated. After closing the buyer controls the target and can influence the very performance the earn-out measures — so a clause that, in substance, let the buyer decide at will whether the earn-out is ever payable would run towards the article 112 problem. That is different, though, from the ordinary situation in which the buyer runs the business normally and the earn-out turns on objective results. It is wrong to say that, because the buyer controls the company, an earn-out is void unless there are seller-protection covenants; ordinary post-closing control is not, by itself, a bare-will condition. The point is narrower: the payment should be tied to an objective outcome, so that whether it falls due does not sit solely within the buyer's uncontrolled choice.

Seen this way, the operating protections a seller negotiates are doing two jobs at once. Commercially, they stop the buyer depressing the metric. Legally, by anchoring the payment to objective performance rather than to the buyer's discretion, they help keep the earn-out clear of the potestative-condition risk. That is a reason to design them with care — but they remain negotiated contractual safeguards, not rules Moroccan law supplies on its own.

A payment made later is not necessarily an earn-out. Deferred fixed consideration is an amount that is already fixed, or otherwise determinable independently of the business's future performance, and simply paid later — in instalments, or as a holdback released on a date or on a routine condition. The seller knows, in substance, what is owed; only the timing is deferred. There is nothing contingent about the sum in the sense that matters here.

An earn-out is different: the seller's entitlement or its amount depends on agreed future results or events, and is genuinely uncertain at signing. The distinguishing test is whether the figure is aleatory — tied to performance that has not yet happened — rather than merely paid on a later date. A single deal can, of course, combine both: a fixed deferred instalment plus a separate contingent earn-out. But collapsing the two is a real error, because they behave differently for enforceability, for the determinability analysis above, and often for tax characterisation.

Completion accounts and earn-outs both make the final price depend on figures established after signing, which is why they are confused — but they look at different moments. A completion-accounts adjustment re-measures the price against the target's financial position at or around completion — its actual cash, debt and working capital on the day — and settles a true-up shortly afterwards. An earn-out makes part of the consideration depend on how the business performs after completion, over a forward-looking period.

One looks at the closing snapshot; the other looks forward. That single difference explains the rest: completion accounts are about measuring a position that already exists at closing, so they resolve quickly; earn-outs are about performance that has yet to occur, so they run for months or years and carry the buyer-control tension that completion accounts do not. This guide does not re-teach net debt, working capital, leakage, the locked-box date or the completion true-up — those belong to the price-mechanisms guide, and the boundary is deliberate: if the dispute is about the closing balance sheet, it is a completion-accounts question, not an earn-out one.

An earn-out is consideration — part of what the buyer pays for the shares. An indemnity or a claim under the seller's guarantee is the opposite direction of travel: it is a remedy that shifts a loss or liability back to the seller. The two can meet — a buyer may want to set an indemnity claim off against an earn-out it still owes (addressed below) — but they are not the same mechanism, and the architecture of caps, baskets, thresholds, claim notices and time limits belongs to the seller liability protection (garantie d'actif et de passif) guide, not here.

Keeping them apart matters in drafting because the same underlying fact can look like both. A downturn caused by an undisclosed liability might reduce the earn-out (less performance) and also found an indemnity claim (breach of a warranty). Whether one, the other or both apply, and whether recovery under one bars recovery under the other, is a question the agreement must answer deliberately — precisely so the same economic loss is not both deducted from the price and separately compensated.

An earn-out is, above all, a way to close a gap in expectations about the future. Where the seller values the business on optimistic projections and the buyer will only pay for results it can see, an earn-out lets the parties agree now and let performance settle the difference later. It is common where much of the value sits in future growth, in a founder's continuing involvement, in a pipeline that has not yet converted, or in a milestone — a licence, an approval, a contract — that has not yet been reached.

The incentives cut both ways, which is why the drafting is contested. A seller gets a higher headline value and the chance to be paid for upside, but takes the risk that the buyer's stewardship, or simple bad luck, depresses the number; a seller also ties up part of the price and its certainty. A buyer defers part of the cost, pays only for performance that materialises, and keeps the seller motivated — but accepts constraints on how it may run its own company during the period, and the prospect of a dispute at the end. Neither side gets the mechanism entirely on its terms, and a workable earn-out is a negotiated balance rather than a standard form.

Everything in an earn-out turns on what is measured. The common financial metrics are revenue, EBITDA or another profit measure such as EBIT, gross profit or net income; deals also use non-financial or milestone metrics — units or volumes sold, customers or contracts won, or a defined commercial or regulatory event. Each choice trades off how closely the metric tracks real value against how easily it can be argued over or influenced.

The broad pattern is that the higher up the profit-and-loss the metric sits, the simpler and harder to manipulate it is, but the less it reflects the quality of the earnings. Revenue is simple but ignores cost and margin; profit measures capture value but open the door to accounting and allocation disputes; milestones are objective but binary. No metric is universally best, and none should be presented as legally preferable — the right choice depends on the business, on where the parties' disagreement about the future actually lies, and on how confident each side is that the metric can be measured cleanly.

A revenue-based earn-out ties the contingent payment to the target's sales over the period. Its appeal is simplicity: revenue is nearer the top of the accounts, involves fewer subjective adjustments than profit, and is generally easier for both sides to track. For a seller worried about accounting discretion, that relative objectivity is attractive.

The trade-off is that revenue can be pushed around in ways that do not build real value, so a revenue metric invites its own protections: against channel-stuffing or pulling sales forward, discounting to inflate the top line, redirecting customers to other parts of the buyer's group, related-party sales at non-market prices, aggressive revenue-recognition timing, or booking low- or negative-margin sales just to hit the number. Revenue is simpler, not safer, and it is not legally preferable — it just moves the argument from how profit was calculated to how the sales were generated and recognised.

EBITDA-based earn-outs are common because EBITDA tracks operating value more closely than revenue, but they are the most dispute-prone, and it is worth being clear about why. The final figure can depend on a long list of judgement calls: the accounting policies applied, how extraordinary or one-off items are treated, what is normalised out, how central or group management charges are allocated, how integration costs and synergies are handled, the effect of acquisitions or disposals during the period, whether spending is capitalised or expensed, and how intra-group or related-party charges are priced. Move any of these and the EBITDA moves with it.

The essential point is that none of this is settled for the parties by law or by an accounting standard. Moroccan law does not provide a universal contractual definition of EBITDA for earn-outs, and neither IFRS nor the Moroccan accounting framework automatically fixes the earn-out metric — those are financial-reporting rules, not the parties' price formula. If EBITDA is the metric, the contract has to define it: the specific adjustments, the policies to be applied, and how the recurring sources of dispute above are to be handled. An EBITDA earn-out with a thin definition is an argument waiting to happen.

The period over which performance is measured has to be pinned down precisely, because it defines the window in which everything — the seller's upside, the buyer's constraints, and the scope for manipulation on both sides — plays out. The agreement should fix the start and end dates, whether there is a single period or several, and, where there are several, whether each is measured on its own or cumulatively, with any carry-forward or carry-back of over- or under-performance spelled out.

Length is a real trade-off. A short period gives the seller quicker certainty and limits the time the business must be run under earn-out constraints, but may not be long enough for the value the seller is counting on to appear; a longer period captures more of that value but extends the buyer-control tension and the chance of intervening events — a downturn, a restructuring, a change of plan — that complicate the measurement. Any caps or floors on the earn-out amount belong here too, as part of the earn-out's own economics; they are not the same as the caps and baskets that limit liability under the seller's guarantee.

Because a financial-metric earn-out is only as clear as the rules for computing it, agreements usually set a hierarchy for how the figure is to be prepared: first, the specific definitions written into the agreement for the earn-out; then any earn-out-specific accounting principles the parties agreed; then the reference or historical accounting policies of the business, consistently applied; and, only after those, the applicable accounting standards. The aim is to stop the preparer changing the answer by changing the method. This is the same logic the price-mechanisms guide develops for completion accounts, and it is not re-derived at length here.

Two cautions keep this accurate. The hierarchy is a drafting technique, not a rule Moroccan law imposes; its usefulness comes entirely from being specific, and a vague hierarchy simply relocates the argument to what consistency means. And the accounting framework in the background — Moroccan norms, or IFRS at group level — governs how the company reports, not what the parties owe each other under the earn-out. The contract, not the standard, decides how the earn-out figure is built.

This is the structural heart of the subject. After closing the buyer owns and runs the company, yet the seller may still be depending on that same company's results for part of the price. The buyer's ordinary decisions — how to invest, whom to employ, how to allocate group costs, whether to integrate or restructure — can move the metric, sometimes sharply, without any bad faith at all. The earn-out therefore has to say something about how the buyer's conduct during the period affects the payment.

The actions that most often need addressing are familiar: shutting down or running down the relevant business, diverting revenue or customers to other parts of the buyer's group, shifting sales or costs artificially between periods, loading the business with group or related-party charges, changing accounting policies, and restructuring, integrating, acquiring or disposing of parts of the business in ways that distort the metric. Moroccan law does not automatically prohibit these ordinary commercial choices — the buyer is entitled to run its own company — which is exactly why, if the seller wants protection against them, the agreement has to provide it expressly.

Seller-protection covenants are the negotiated answer to buyer control, and they should be understood as contractual safeguards rather than defaults. Common concepts include an obligation to run the business in the ordinary course during the period; not to divert revenue, customers or opportunities away from it deliberately; not to accelerate or defer income and costs artificially; to keep accounting policies consistent with the reference basis; to keep group or related-party charges at arm's length; and to give the seller defined information, and sometimes consultation, rights over decisions that bear on the metric. Specific treatment of integration, restructuring and extraordinary transactions often sits here too.

What these covenants should not do is overreach into a proposition Moroccan law does not support. There is no default rule that the buyer must run the business so as to maximise the seller's earn-out; the buyer retains genuine freedom to manage its company, and article 231's requirement of good-faith performance secures honest performance of what was agreed, not a duty to optimise the seller's outcome. The realistic goal of these covenants is to prevent deliberate or artificial destruction of the metric and to keep the earn-out anchored to objective performance — not to freeze the business or guarantee a result.

An earn-out the seller cannot see is an earn-out the seller cannot check, so the agreement usually gives the seller access to the records that sit behind the metric: the relevant financial statements, the calculation itself, the working papers, and the underlying books to the extent needed to test them. Without some access, a seller has no practical way to know whether the calculation is right, and disputes become harder to resolve.

But there is no automatic, universal seller information right to assert — the scope is whatever the contract grants, and it has to be defined rather than assumed. It is also bounded by legitimate limits: the target's confidentiality and trade secrets, the interests of a wider buyer group, and simple proportionality, since a seller with a modest contingent stake is not entitled to open-ended access to the buyer's affairs. The workable position is a defined right to the information genuinely needed to verify the earn-out, framed with appropriate confidentiality — a subject this guide flags rather than develops.

The end of the period sets off a process the agreement should map in advance. Conceptually: the period closes; the party responsible (usually the buyer) prepares a calculation statement showing how the metric and the resulting amount were computed; the seller receives that statement with supporting information and has a defined window to review it; items the seller accepts, or does not challenge in time, become final; and anything still disputed goes into the agreed dispute route before the final amount becomes payable. This is contractual architecture, not a procedure Moroccan law prescribes.

Where the parties use an accounting or financial expert, the key is to keep the expert's mandate to what an expert is for. Matters of arithmetic, accounting classification, and applying the agreed methodology can sensibly be put to an expert whose determination the parties may agree is final on those points. Questions of a different character are not naturally the expert's: what a contract definition means, whether the buyer breached an operating covenant, whether there was fraud (dol), the scope of a party's contractual rights, or whether the expert has strayed beyond the mandate. Those are legal questions that the dispute-resolution clause may reserve to the courts or arbitration.

This has to be reconciled with article 487, and doing so keeps the section honest. An expert who applies an already agreed methodology to compute the figure is applying the objective basis the parties chose — consistent with determinability. An expert given power to decide freely what the price should be would be a different thing, and it should not be assumed that an expert may freely set the price, that the expert's authority is unlimited, or that an expert's determination automatically displaces any judicial review. The expert calculates within the mandate; the law does not hand the price over to the expert's discretion.

Once the amount is final, the agreement handles payment: the date it falls due, the currency and method, how any undisputed portion is paid while a disputed balance is resolved, and whether interest runs — the last only where the contract or the applicable rules support it. These are mechanical points, but leaving them vague is a common way for a settled figure to turn back into a dispute about when and how it is paid.

A recurring question is whether the buyer may withhold, or set off, an earn-out against an indemnity or warranty claim it says it has. The answer is not automatic. Whether set-off is available depends on the contract, on the nature and status of the claims (a disputed claim is not the same as an established one), and on the applicable Moroccan rules, under which set-off generally supposes reciprocal, liquid and due debts. A buyer cannot simply assume it may hold back the earn-out for any asserted claim. The architecture of the underlying claim — how it is made, capped and limited — belongs to the seller's guarantee (GAP) guide; here the point is only the interaction, which the agreement should address expressly rather than leave to argument.

Earn-outs often go hand in hand with the seller staying on to run the business as manager, employee or consultant, and that overlap needs care because a single payment can wear two hats. A sum labelled earn-out is, in principle, part of the purchase consideration for the shares; but if it is designed so that it depends on the seller's continued service — payable only while employed, forfeited on departure, or sized by reference to the seller's role rather than to the shares sold — it starts to look like remuneration for that service rather than price for the company.

The consequences of that characterisation can differ across legal analysis, tax treatment and accounting treatment, and they will not always line up. This guide does not reach categorical conclusions: it is wrong to say that every earn-out paid to a seller-manager is automatically salary, and equally wrong to say it is automatically purchase consideration — the answer depends on how the payment is structured and conditioned, and it may need separate legal, tax and accounting analysis. The practical takeaway is to draft the earn-out and any service arrangement so that each is clearly what it is meant to be, and to treat the characterisation as a live question rather than a label the parties can simply choose.

An earn-out assumes the business will keep running in a recognisable form for the whole period, and that assumption can break if, before the period ends, the buyer resells the target, transfers the business, merges or restructures it, closes the relevant division, or otherwise changes the ownership structure. Any of these can make the agreed metric hard or impossible to measure as intended, and can put the seller's contingent payment at risk through no fault of performance.

Because Moroccan law supplies no default answer, the agreement has to. Contracts address this in different ways — accelerating the earn-out, deeming it achieved (in whole or part), requiring a successor to assume and continue it, providing a recalculation, or expressly providing that a given event triggers no adjustment at all. None of these is a statutory default; each is a negotiated choice. This guide addresses only the consequences for the contingent consideration; the wider law of change-of-control and third-party consents is a separate subject and is not developed here.

Earn-out disputes are common enough, and predictable enough, that knowing where they cluster is itself a design tool. They tend to arise from a familiar set of pressure points: ambiguity in the formula; disagreement over what a metric definition covers; accounting-policy choices and normalisation; the allocation of group or central costs; the effect of integration, restructuring, or acquisitions and disposals; whether the buyer's conduct breached an operating covenant; the scope of the seller's information rights; whether a milestone was met; allegations that a figure was deliberately manipulated; the reach of an expert's mandate; and the timing, withholding or set-off of payment.

The through-line is that most of these are drafting failures before they are legal disputes. Precise definitions, a clear methodology, well-scoped covenants and a sensible split between accounting and legal questions prevent far more trouble than any dispute clause resolves after the fact. This guide describes where the risk sits rather than asserting how any Moroccan court would decide a given case; it invents no case law, and the honest position is that the outcome of an earn-out dispute turns on the specific agreement and the applicable law.

To be clear about the limits: this guide explains contingent consideration tied to future performance, not the whole transaction. It does not reproduce the share purchase agreement, walk through the acquisition process, set out the due-diligence method, develop the seller's representations and warranties, or rebuild the signing-to-completion process.

It does not re-derive the locked-box and completion-accounts mechanics owned by the purchase-price mechanisms guide, nor the liability architecture owned by the garantie d'actif et de passif guide. It does not develop general change-of-control and third-party-consent doctrine, which is a separate subject. It states no tax rates and works no tax calculations, and it presents no accounting standard as if it fixed the parties' contractual formula.

It provides no template, model clause or drafting, and it describes no service and makes no offer. Where a defined legal question needs a formal conclusion, that is the province of a Moroccan-law legal opinion, and the governing-law question belongs to the choice-of-law guide.