The turbulent economic environment resulting from the COVID-19 pandemic has affected the M&A world in numerous ways. Among them is the increased focus on earnout provisions, both those in place from legacy deals and those being considered for inclusion in an upcoming transaction. This post provides an overview of the earnout mechanism and describes the alternative approaches dealmakers have at their disposal.
The purpose of an earnout is to allocate risk and reward between a purchaser and a seller in respect of the post-closing success of the acquired business. Earnouts are useful as a means of bridging the valuation gap: … Continue Reading