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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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.
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.
As the shareholder representative, SRS manages all post-closing matters, including working capital and other purchase price adjustments, tax reviews, earn-outs, the handling of claims, disputes and litigation, communications with acquirers and selling shareholders, and management and distribution of escrow and expense funds.
SAN FRANCISCO -- The road to a life science M&A exit may be long and sometimes complicated, but it often leads to real earn-out payments, according to data released today.
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.
Added Mitchell, "The fact that the operating executives of our companies have enthusiastically accepted this new plan - and are willing to bet $61 million of their earn-out potential - reflects a strong vote of confidence in the synergies and market leverage our newly integrated company will command.