For owners coming off a strong 2025, the temptation to “wait just one more year” before seeking an exit (acquisition) is powerful. The logic seems sound: grow by 20% in 2026 and increase the reference EBITDA (and therefore valuation) by 20%.
But will that extra 20% valuation at close be enough to compensate for the long-tail risk of a deferred exit? In my view, the math (i.e. the risk-adjusted return) is unattractive. By delaying an exit by 12 months, sellers expose themselves to two distinct windows of high-impact risks:
1. The Deal Window (Pre-Close)
Market shifts can destroy coveted valuations overnight. We all saw this when Google’s changes to its Marketing Platform reseller program shifted the valuation landscape overnight. Today, Generative AI poses a similar “out-of-the-blue” threat to exit multiples. A single client loss or a platform pivot during that “one extra year” can mean the difference between achieving a targeted exit and no exit at all.
2. The Earnout Window (Post-Close)
Extending the earnout by one year pushes the final measurement period from year 3 to year (with compounding growth). At 20% annual growth off a 2024 base of $100, the target moves from $173 in year 3 (+73%) to $207 in year 4 (+107%, or 2.07 x 2024). Put differently this additional year’s growth of $34 is almost 29% growth over 2025.
Sustaining 20% YoY growth for four consecutive years is a massive bet in the best of times.
The Bottom Line
In an era of rapid technological disruption, I don’t believe an additional 20% in valuation sufficiently offsets the risk of a market shift or earnout failure. The payoff profile is also asymmetrical with the upside being an additional 20% valuation and the downside being catastrophic.
