Electrical Earnouts and Equity Rollovers (2026)
On a $5 million electrical offer from an investor-backed platform, about $3.5 million is cash at closing. The rest arrives later, if it arrives.
- Money held back runs 2 to 3 years, and is paid only if the business hits agreed numbers.
- The stake you keep cannot be sold until they sell.
- Your buyer may not be able to pull a permit for months after closing, and the clock can be running anyway.
Money Held Back Until the Work Holds
Part of your price is paid after closing, and only if the business hits agreed numbers. On project work that is usually revenue or profit over a set period.
- The period: 2 to 3 years with investor-backed buyers. A competitor buying you holds back little, or nothing.
- The size: part of the 20% to 40% that is not cash at closing.
- The measure: revenue or profit, and sometimes the service agreements you built.
How Common This Is
Across private company sales of every kind, 24% carried money held back in 2025, up from 19% in 2014.
Investor-backed platforms are the buyers who do it. A competitor buying you often pays the whole price at closing and holds back little.
The Number Is Not Yours Any More
You sold the business. You no longer price the jobs, chase the work, or decide which crew goes where. They do.
- If their choices cost you work, you can miss a target that was realistic the day you signed it.
- Money paid in later years falls under the IRS rules for sales where the price is not fixed at closing. Ask your accountant how the timing lands.
The Stake You Keep
Instead of taking all cash, you leave part of your price invested in the buyer’s parent company.
The pitch is a second payday. When they sell to the next investor, your slice sells with them.
- Your slice is small. A $5M business inside a national platform is a fraction of one percent.
- You cannot spend it. It is locked until their next sale, on their timetable.
- It can shrink. Later fundraising dilutes you unless the paperwork stops it.
- You can lose it. Leaving on bad terms can trigger a forced buyout at a lower value.
The Tax Is Delayed, Not Cancelled
Swapping part of your business for stock in their company is usually not taxed at the time, if it is set up correctly. You pay when you sell the stock.
Any cash you take alongside it is taxed now. That is the part sellers get wrong.
What to Ask For
- The right to sell when they sell, on the same terms.
- The right to make them buy you out after a set period.
- Quarterly numbers, so you can see what your slice is worth.
- Protection from dilution when they raise more money.
Why a $5M Offer Is Not $5M
Across all deals carrying money held back, about one dollar in five actually gets paid. Price that portion as a fraction of its headline.
| Part of the Offer | Usual Share | On $5M | The Risk |
|---|---|---|---|
| Cash, investor-backed | 60% to 80% | $3M to $4M | None, it is in your account |
| Cash, a competitor | Often all of it | Up to $5M | None, but the headline is lower |
| Held back and your stake | 20% to 40% | $1M to $2M | Neither pays on closing day |
Your offer letter has to split that last row in two. Money held back and a stake in their company behave nothing alike, and the letter is where the line gets drawn.
These obligations sit unresolved for years. IES Holdings agreed one in April 2024 when it bought Greiner Industries.
At 30 June 2026, more than two years on, it still carried that obligation at $2.5 million. That estimate had risen during the year.
The Permit Gap Runs Through Your Targets
Your buyer cannot pull a permit until someone qualifies their company. If your targets are measured from closing day, you are judged during the months they cannot fully trade.
- In New Jersey the permit cannot be handed over. State law says it is not assignable or transferable, so the buyer applies for their own.
- One licensed person can qualify only one New Jersey company. A platform that already owns one here needs a second qualified person, not the one they have.
- Five years of experience stand behind the exam. Getting someone qualified takes a year or more, and it is not something closing week can fix.
- Pennsylvania has no state licence. Towns run their own and each belongs to a named person, so the gap is per municipality.
Ask for the clock to start when the buyer’s own permit is in place, not on closing day. In New Jersey, ask before you sign anything.
One Big Job Can Miss the Target
Electrical work is lumpy. One large job moving into the next period can miss a yearly target on timing alone, with nothing wrong in the business.
Ask for targets to be cumulative across the whole period, or measured on work booked rather than work billed.
All of This Is Set in the Offer Letter
The structure gets fixed in the offer letter, and most owners sign it looking only at the headline number.
The buyer does this every month. You do it once.
Even non-binding terms stick. Asking to move one later gets treated as bad faith.
- Settle first: when the clock starts, how the targets are measured, whether partial performance pays, and how you get out of the stake.
- By the time the full agreement arrives, your leverage is gone.
Related Guides
- Investor-backed platform or a competitor, and what electrical companies sell for.
- Valuation by revenue size, and how long a sale takes.
- The same offer letter fixes how the sale is taxed.
- The permit rules in New Jersey, Pennsylvania and New York.
- Reaching these buyers without paying a broker.
- These terms get negotiated quietly. Selling off market.
Frequently Asked Questions
Usually 60% to 80% at closing from an investor-backed platform. The other 20% to 40% is money held back plus a stake in their company. A competitor buying you often pays all of it at closing.
Two to three years with investor-backed buyers. The longer it runs, the more can change around you, and the harder a target set on signing day becomes.
Usually revenue or profit over a set period. Get the exact definition written down before you sign, because the wording decides who carries the risk when a job slips into the next year.
It can, and this is the electrical-specific risk. Your buyer may not be able to pull permits for months. If the clock starts at closing, you are judged during that gap. Ask for it to be excluded.
No. It pays when they sell to the next investor. It can be worth several times what you left in, or very little if they underperform, and you cannot cash it out in the meantime.
On project work a single job moving into the next period can miss a yearly target on timing alone. Ask for the measure to run on work booked, or for targets to be cumulative rather than year by year.
In the offer letter, before the full agreement is drafted. Even non-binding terms stick, and asking to change them later reads as bad faith. Argue the structure before you sign the letter.