Earn-Outs: A Worthwhile Tool for Dealmakers?
- Topics:
- Deal Structure
- Tags:
- Buyer,
- Tool,
- Theory,
- Seller,
- Ross Crossland Weston Mirus,
- Pricing,
- Marketing Research,
- Marketing,
- Investment,
- Finance,
- ...
- Source:
- Ross Crossland Weston Mirus
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Overview: This is a challenging time for parties working on M&A transactions, requiring more innovative deal making. A combination of severe market pressures has created a variety of hurdles for a successful deal, with gaps in price expectations between buyers and sellers becoming quite prevalent. In order to bridge the price gap, deal structures featuring price contingencies, especially earn-outs, are becoming increasingly popular, especially in the sale of emerging technology businesses. In theory, earn-outs are a logical way to address the pricing gap between buyers and sellers. The earn-out is designed to satisfy the seller's demand to receive compensation for the anticipated future value of the transferred assets and the buyer's desire to avoid over-paying for potential, but as yet unrealized, value. In the current market, creative deal structuring such as earn-outs are increasingly popular. In theory, earn-outs are flexible, foster cooperation and present an attractive option for dealing with valuation disagreements and current market conditions.
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Format: HTML | Date: May 2003 | Pages: 1
