Dec 7, 2016 – How to Structure Effective Earnouts
An “earnout” is an acquisition payment mechanism where a portion of the purchase price of the selling company will only be paid by the Acquirer if the Seller attains agreed-upon performance goals after the closing.
Well-structured earnouts allow growing companies to increase their sales price and incentivize the Seller’s management team to stay with the Acquirer after the closing of a transaction. By contrast, poorly structured earnouts reduce the Seller’s value to the Acquirer, demotivate management, and result in litigation.