Tag archives: Reverse earn-outs

Earn-outs and reverse earn-outs

In May, we wrote about the increased focus on earn-out provisions during the pandemic as a method to mitigate the risk of a target’s post-closing under-performance and to bridge any valuation gap between the purchaser and seller. More recently, we discussed post-closing balance sheet adjustments as a separate tool to address the same risk. In this article, we will focus on (i) reverse earn-out provisions and (ii) a review of the use of earn-outs in 2020 M&A deals.

Earn-out vs. Reverse Earn-out

As described in more detail in our May post, a ‘classic earn-out’ refers to a post-closing increase … Continue Reading

Tax considerations for earn-outs and reverse earn-outs

As we have previously noted, earn-outs are becoming an increasingly common part of M&A deals, and there are a number of key commercial questions to consider when negotiating them. But there are also tax consequences that must be considered when structuring earn-outs.

Earn-outs link a portion of total purchase price to the performance of the business following the acquisition. In effect, the purchaser will hold back a portion of the purchase price, and if specified targets are achieved, all or a portion of the held-back purchase price will be paid to the seller. In contrast, a reverse earn-out requires the … Continue Reading

LexBlog