But if they do, they will be bucking a well-established trend, where business-dam- aging earn-outs
blunt the brilliance of those agency brands we all regard as high- water marks in creativity.
While contingent consideration assets (clawbacks) are seen in about 5 percent of the transactions in a broader dataset of transactions with contingent consideration, the focus here is on earn-outs
. 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.
When structuring an earn-out
, the purchaser and vendor should address the basis of measurement (revenues, operating profits, and so on), the length of time the earn-out
is in place, and whether the vendor has an opportunity to "catch up" if targets are missed in a given year.
25 August 2016 - UK-based B2B media company Ascential plc (LSE: ASCL.L) has agreed to acquire 100% of Salt Lake City, Utah, USA-based e-commerce analytics provider Oneclickretail.com LLC for initial cash consideration of USD 44m plus future earn-outs
"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.
Under the terms of the agreement, PCM will pay an initial purchase price of USD 15m in cash and certain contingent earn-out
consideration over a three year period.
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.
The consideration also provides for an earn-out
payment to a value of 1.3m shares tied to particular sales targets between 2015 and 2017.