Earn-out

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Earn-out

Refers to an additional payment in a merger or acquisition that is not part of the original acquisition cost, which is based on the acquired company's future earnings relative to a level determined by the merger agreement.

Earn-Out

In an acquisition, an additional payment made to the acquired company's former owner(s) in the event that certain earnings are met. For example, a company may acquire another for $75 million, with an additional $10 million in cash and/or stock if the acquired company's earnings outperform expectations by a certain percentage. Earn-outs are based on the acquired company's potential future earnings.
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Mr Hodgson said: 'The new guidelines on earn outs indicate that the application of Income Tax and National Insurance will be brought to bear where the Revenue believes that companies have used earn-outs as a tax avoidance measure, for example where actual remuneration is disguised as additional consideration for shares.
New York, NY 5/9/08 -- Enzo Biochem has acquired BIOMOL International for $15 million in cash, $3 million in unregistered stock, and earn outs over two year.
And it is likely, based on the brief press release issued with the pre-Budget report, that earn outs satisfied in shares/loan notes after April 5 will also be caught, according to Linda Marston-Weston, head of the transaction tax team at Ernst & Young's Birmingham office.