Abstract: earnouts are contracts that link part of the payment of an acquisition to the future performances of the acquired company. Indeed, they are real options on the future value of the target, and should be valued as such. Unlike the cases of real options most commonly studied, however, they are a§ected by two pecu- liar issues that have an impact on their value: counterparty risk and litigation risk. These features are not taken into account by the previous literature. We present an evaluation model that includes these issues. Our Öndings indicate that counterparty risk and litigation risk may dramatically reduce the value of these contracts.