Earnouts in M&A and private equity transactions bridge valuation gaps. Earnouts take many shapes, with the basic concept being that buyers and sellers agree that a certain amount of money will change hands at closing and additional purchase price may be payable in the future if agreed milestones or performance metrics are achieved by the target after closing. This sounds like a simple splitting up of the purchase price but negotiating and living with earnouts is complicated. This video, combined with our last installments of Dealology on purchase price never being the headline number and working capital adjustments, completes the purchase price picture.
In this video
- What earnouts are, why we use them and where we see them
- What earnouts are typically based on and how they are measured or calculated
- What obligation does buyer have to work towards achieving the earnout and paying seller additional purchase price
- What rights do sellers have, including when buyers stop operating the target business or when buyers sell the target business or themselves