Plumbing Earnouts and Equity Rollovers (2026)

On a $6 million plumbing offer from an investor group, about $3.9 million is cash at closing. The rest arrives later, if it arrives.

• Money held back runs about two years, and is paid only if the business hits agreed numbers.
• The stake you keep cannot be sold until they sell.
• Your targets move with the construction market, which neither of you controls.

Money Held Back Until the Numbers Hold

Part of your price is paid after closing, and only if the business hits agreed numbers. In plumbing that is usually revenue or profit over about two years.

• The period: about two years with an investor group. A local buyer holds back little, or nothing.
• The size: 25% to 40% of the price, held back or left in their company.
• The measure: revenue or profit, and sometimes the service work on its own.

How Common This Is

Across private company sales of every kind, 24% carried money held back in 2025, up from 19% in 2014.

Investor groups are the buyers who do it. A local company buying you pays more of the price in cash and closes faster.

The Number Is Not Yours Any More

You sold the business. You no longer price the jobs, pick which work to bid, or decide who goes out on a call. They do.

• If their choices cost you revenue, 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 $6M shop 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 $6M Offer Is Not $6M

Across all deals carrying money held back, about one dollar in five actually gets paid. Price that portion as a fraction of its headline.

Your offer letter has to split that last row in two. Money held back and a stake in their company behave nothing alike.

Buyers carry these as expected payments, not promised ones. EMCOR works at the large commercial end of the mechanical trades. It put the present value of its own contingent payments at $5.7 million on 30 June 2026.

Only $4.3 million of that was expected within twelve months. The rest sits further out, and the estimate moves every quarter.

Your Targets Ride on Work You No Longer Bid

Every guide here says service and repair is worth more than new construction, because construction stops when the economy does. Your targets run straight through that.

• The market moves on its own. Housing starts ran 13.5% below the year before in July 2026.
• The buyer picks the work. Push the crews toward service and let construction bids lapse, and revenue can fall while profit rises.
• A revenue target punishes that. You lose money on a change that made the business better.

Ask to be measured on profit rather than revenue. If it has to be revenue, split the target by work type and set the construction share against the same months a year earlier.

The Licence Still Has to Be Sorted

Both kinds of buyer need the licence question answered before closing, and in some states that takes months. See selling a plumbing business in New Jersey or New York.

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: how the work is counted, whether partial performance pays, what happens if they sell, and how you get out of the stake.
• By the time the full agreement arrives, your leverage is gone.

Related Guides

• Investor group or local buyer, and what plumbing companies sell for.
• Valuation by revenue size, and how long a sale takes.
• The same offer letter fixes how the sale is taxed.
• Selling in Pennsylvania, where the licence rules differ again.
• Reaching these buyers without paying a broker.
• These terms get negotiated quietly. Selling off market.

Frequently Asked Questions