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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References in periodicals archive ?

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.

Legal and finance: Pressure brings change in controversial tax on entrepreneurs

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.

Enzo buys reagent firm

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.

Earn-outs face tax rules peril; Many business vendors who have been expecting to pay only ten per cent tax on their gains from Aim-listed companies now face a near doubling of their tax bills if they sell after April 5, warns Linda Marston-Weston, of Ernst & Young