Stout 2026 PPA Study Finds Publicly Reported Purchase Price Allocations Declined as Contingent Deal Value Rose

Stout's 2026 Purchase Price Allocation Study found that reported non-bargain-purchase M&A transactions fell 9% to 725 in 2025 from 800 in 2024, while contingent consideration was used in 23.7% of deals, up from 22.3%. In transactions using earnouts, contingent consideration rose to 20.3% of enterprise value on average from 17.4%. Information Technology defied the broader slowdown, with deal count increasing to 191 from 177 and median enterprise value rising to $79 million from $63 million, while Consumer Discretionary deal volume declined but median deal value increased to $92 million from $27 million.

Analysis

This is a lagging accounting dataset rather than a near-term M&A-volume signal, but it reinforces that buyers are increasingly preserving cash and bridging valuation gaps through earnouts. That structure is most favorable to disciplined serial acquirers with strong integration capabilities—CSU.TO, ROP and DHR—because deferred consideration can improve initial return-on-invested-capital optics; the offset is future fair-value remeasurement expense if acquired businesses outperform. For roll-up models, investors should treat rising earnout liabilities as economic acquisition cost, not merely a non-cash accounting item.

The higher intangible-premium mix in technology raises a 6-18 month impairment-risk screen rather than a broad sector-long conclusion. Acquirers paying for growth assets will face disproportionate EPS and multiple pressure if revenue retention, AI-related product monetization, or rate assumptions disappoint; software consolidators with aggressive acquisition accounting deserve closer scrutiny than organic-growth peers. A weakening growth backdrop can simultaneously reduce earnout payouts and expose that initial deal economics were dependent on optimistic base-case forecasts.

Near term, there is no clean index-level trade: the evidence is backward-looking, transaction-specific, and does not establish that current announced deals will follow the same structure. The more actionable implication is to monitor upcoming quarterly filings for contingent-consideration liabilities, acquisition-related amortization, and goodwill additions relative to acquired revenue; these items can identify serial acquirers whose reported adjusted EBITDA is diverging from cash economic returns.

Key Decisions for Investors

• No immediate sector beta trade. Use the next 1-3 quarters of 10-Q/10-K filings to build an alert list for acquirers where contingent-consideration liabilities exceed 10% of enterprise value or rise faster than acquired revenue; require disclosure-level confirmation before positioning.
• Maintain a quality bias within acquisitive software: favor CSU.TO or ROP over highly levered, acquisition-dependent small-cap software roll-ups where earnout revaluation and amortization could pressure GAAP EPS. Reassess if organic revenue growth falls below management's acquisition underwriting assumptions or net leverage rises materially.
• For healthcare tools, monitor DHR and TMO acquisition notes for earnout exposure and goodwill additions relative to purchase consideration. A meaningful increase in contingent liabilities paired with slowing bioprocessing/order growth would be a 6-12 month catalyst to reduce exposure, as impairment and remeasurement risk would become more salient.
• Consider a forensic short watchlist—not a recommendation—for serial acquirers trading at premium EV/EBITDA multiples with elevated goodwill, weak cash conversion, and recurring 'adjusted' acquisition costs. Falsify the bearish setup if acquired revenue retention accelerates and cash conversion remains above 90% of adjusted EBITDA.