How earnouts can help business owners and investors put a value on what comes next
National Mechanical Services
A business can sell for nearly $2 billion and still leave hundreds of millions of dollars riding on what happens next.
When PepsiCo completed its $1.95 billion acquisition of Poppi in May 2025, the transaction included an additional earnout tied to future performance. [1] By September 2026, PepsiCo valued that contingent obligation at $12 million, down from $278 million at the end of 2025. [2]
That reduction concerns the accounting value of the obligation. The contractual terms still call for a $300 million payment if specified milestones are achieved by the third quarter of 2027, and no payment otherwise. The final payout remains undetermined. [2]
For business owners and investors, the story raises a question that also matters in plumbing, HVAC, and mechanical acquisitions: how should a purchase price recognize growth that has yet to materialize?
Bridging the valuation gap
Imagine a plumbing company with established commercial customers, recently awarded projects, and a growing service division. Its owner sees years of relationship building about to produce stronger results. A buyer sees opportunity, along with the labor, capital, and execution required to turn it into profitable work.
An earnout can help both sides move forward. It makes additional purchase consideration payable if the business achieves agreed results after closing, giving the seller a path to greater value while tying that additional payment to performance. SRS Acquiom identifies this as a way to bridge differences in buyer and seller valuations. [3]
Consider a hypothetical mechanical contractor where diligence supports $5 million of fixed purchase consideration, while the owner believes an emerging opportunity supports $6 million. The parties could agree to the $5 million base, plus up to $1 million tied to defined earnings performance over two years. The agreement would specify the targets, calculation, and any partial payments.
The base price already reflects expectations about the company’s future. The earnout addresses a specific unresolved opportunity, allowing the business’s actual results to determine whether additional consideration is earned.
The structure matters as much as the target
An earnout needs a fair, understandable path to payment. After closing, the buyer may control staffing, spending, and other decisions that influence performance. Sellers need clarity about how those decisions affect their potential proceeds. [4]
The agreement should define the performance measure, measurement period, and payout formula. It should also address management fees, integration costs, shared expenses, operating support, access to financial information, and a process for resolving disputes. The American Bar Association identifies measurement standards and operating control as central earnout issues. [4]
For a mechanical contractor, those details are practical. A delayed project or a customer account shared across the buyer’s platform can affect the calculation. Both parties should understand how those situations will be handled before signing.
The owner’s goals matter, too. Someone planning an immediate retirement may prefer greater payment certainty over a larger conditional amount. The right structure should fit the business and the transition.
What investors should look for
An earnout can bring discipline to the price paid for uncertain growth by making part of the consideration dependent on results. [3] But a smaller payout does not automatically mean a better investment.
A successful business that earns its full payout may create substantially more value than an underperforming acquisition that requires no additional payment.
Investors should therefore evaluate the full potential acquisition cost, the performance required to justify it, and the cash needed when payment becomes due. A sound structure supports an operating plan in which the seller earns additional value and the buyer owns a stronger business.
Why this matters for National Mechanical Services
At National Mechanical Services, our strategy centers on building a mechanical services platform through acquisitions and operating growth. That requires understanding what an owner has built and what the next stage will demand.
Earnouts can be useful when a sound company has a growth opportunity that buyer and seller value differently. Their suitability depends on clear measurement, realistic targets, and an operating plan that gives the business a credible path to achieving them.
In our sector, that plan must account for the people delivering the work, the leadership guiding the transition, and the capital supporting growth. The Poppi story reinforces why acquisition price and future performance belong in the same conversation. We want deal structures that make clear how value is shared when the business succeeds.
For business owners: Connect with NMS to discuss how the established value and growth opportunities of your plumbing, HVAC, or mechanical company could be reflected in a transaction. Scheduling button
For investors: Connect with NMS to learn more about our acquisition thesis and how we evaluate purchase price, operating plans, and growth opportunities across the mechanical services sector. Scheduling button
Sources
[1] PepsiCo. PepsiCo completes acquisition of poppi, accelerating strategic portfolio transformation. May 19, 2025.
[2] PepsiCo. Form 10-Q for the quarterly period ended September 5, 2026. Note 8, printed page 23.
[3] SRS Acquiom. M&A Earnout Provisions – What You Need to Know. Casey McTigue.
[4] American Bar Association. The Ins and Outs of Earn-Outs: A Delaware Perspective. March 18, 2022.
