earnout


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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.

earnout

A contingency component of an acquisition agreement in which the acquiring company agrees to additional payments in the event certain performance-based goals are achieved. For example, Sylvan Learning Systems in 1995 acquired Drake Prometric for $20 million in cash plus 5.9 million restricted Sylvan common shares. The deal included an additional 2.7 million Sylvan shares to be released to the sellers in the event stipulated revenue goals were met through 1998.
References in periodicals archive ?
The transaction structure is anticipated to result in tax benefits to Cantel presently valued at more than $100 million, which would result in a net purchase price of $625 million for the upfront consideration and up to approximately $675 million in consideration including potential earnout payments.
Simply stated, earnout value is equal to the probability of success, or of each possible outcome, multiplied by the amount to be paid given the outcome.
The maximum earnout payment will result in an overall purchase price multiple of no greater than 7.25 times an annualized adjusted EBITDA achieved over the earnout period.
The issue that arises in these scenarios is whether the earnout is a contingent purchase price or compensation to the seller and, in certain circumstances, subject to bifurcation as both a contingent purchase price and compensation.
An earnout provision may be included in the initial letter of intent or come into the negotiations at later stages if valuation becomes an issue after due diligence.
View A, the liability view, is the view that the transaction premise is based on a transfer of a contingent consideration liability to a counterparty such as a bank or an insurance company, rather than based on the amount that the selling shareholders would be willing to receive in exchange for the earnout. So the conceptual basis for the measurement is to estimate the consideration required to entice a counterparty to step into an obligation to hold the liability to maturity and pay the earnout.
Industry data suggests that about half of all business acquisitions by private equity firms involve an earnout; many acquisitions by strategic buyers also include that feature.
An earnout provision in a business sale refers to a transactional tool used to compensate a seller for future profits or sales.
Sigma is also entitled to an additional earnout of some EUR12.5m based on certain conditions.
The primary subject matter of this case concerns the cross-cultural negotiation of an earnout agreement between Denshi Global Holdings, a publicly-traded Japanese company, and Informatica de Sistemas, S.A,.(IDS) a private Spanish company that Denshi is seeking to acquire.
The sale price includes fixed EUR 5 million (USD 7.1m), an earnings and financial equalisation determined on the basis of the interim financial statements as of August 31, 2009 and a variable purchase price (earnout) component in amount depending on the company's future business performance.
The minimum consideration for the acquisition of CBS is pounds 5.8 million, payable over a three-year period plus an agreed earnout. The first tranche is pounds 3.5 million cash, payable on completion.