The total aggregate consideration, including initial consideration and earn-out
payments, is capped at USD 225m in the event that stretching profit targets are reached, and will be paid over the period to February 2020.
The median earn-out
period for these 120 transactions is three years.
This includes determining whether the earn-out
should be tied to revenue, operating margins, profit, or a combination of these benchmarks.
Under current GAAP, earn-out
payments are recorded in the acquirer's financial statements only if and when they are earned.
A traditional earn-out
can be a good solution when a seller is confident about achieving hockey-stick forecasts.
Thus, when a vendor accepts an earn-out
, it normally does so in exchange for the opportunity to receive a higher price when the agreed performance measures are met.
This latter approach was recently employed when SBO obtained a 5-year construction loan commitment plus a 5-year earn-out
with respect to a substantial 80/20 project located in midtown New York.
There was a significant increase in the use of earn-outs
in European M/A in 2014, rising from 14% of deals in 2013 to 19% and indicating confidence in future performance by sellers.
The total consideration payable under each proposal includes maximum earn-out
payments of EUR800m tied to performance milestones and the vendor is currently seeking a guaranteed minimum payment of EUR7bn excluding earn-outs
, the Brazilian newspaper explained.