Private equity · Answer

How should a deal team weigh an earnout against reps and warranties insurance?

Both are rising hard and the mechanism they are replacing is in decline, which tells you what the market has decided it can no longer verify. Since 2015, as a share of all 10-K filers: reps and warranties insurance up elevenfold, earnouts up two and a half times, and working capital adjustments down 31%.

The evidence

The three series, same denominator, same window.

Reps and warranties insurance: 4 filings in 2015, 34 in 2026. Earnouts: 293 to 558. Working capital adjustments: 364 to 195. All expressed as a share of all 10-K filers, which has itself fallen 23% since 2015.

What separates the three mechanisms.

A working capital adjustment settles a number both sides can compute from the same ledger. An earnout and a warranty policy exist precisely because something could not be settled that way. One mechanism for verifiable disputes is in decline; the two for unverifiable ones are both rising.

Where you can verify, you negotiate on price.

Salesforce's acquisition of Braze is computable by anyone — $47.50 per share, about $5.66 billion in enterprise value, against revenue in a public 10-K. Twenty minutes and two documents.

Where you cannot, you negotiate on structure.

PepsiCo paid $1.95 billion for poppi and $1.2 billion for Siete Foods and published revenue for neither. The prices are public because a material acquisition by a public acquirer has to be. Neither multiple is computable from any filing.

The honest counter-reading.

A phrase can leave the filings because the practice declined, or because it became so standard nobody writes it down. Counts cannot separate those two. What the counts do establish is that the two risk-shifting mechanisms rose, and that is the half a deal structure turns on.

What would have to be true for this to be wrong

If your diligence can actually verify the thing in dispute — a clean audited history, a contracted revenue base, a customer list you can call — then the adjustment mechanism is the cheaper instrument and the trend above is somebody else's problem. The question is not which mechanism is fashionable. It is which half of your risk is verifiable.

Sources: SEC EDGAR full-text search and company filings, with each figure's period stated above. AI-answer measurements are CULT+MATH primary research, criteria registered before retrieval. Published 2026-10-21 by Ipalibo Da-Wariboko, CULT+MATH LLC. Figures carry the date they were pulled; where a number could not be sourced, this page says so and gives none.

This is one of six decisions covered in the private equity decision brief — each with the evidence behind it, who owns it, who it is contested with, and what would have to be true for the answer to flip.

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