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 maximum earnout payment will result in an overall purchase price multiple of no greater than 7.
From the seller's perspective, if the seller is an individual and the earnout is characterized as compensation (including payments for future services and covenants not to compete), the payment will be subject to federal income tax rates of up to 39.
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.
If we assume, for example, that an earnout is structured so that there's an extra $5 million payment only if revenues exceed a certain threshold, or for some other reason, then, this contingent payment is nonlinear.
When considering an earnout, it is wise to follow a few broad guidelines:
Deciding what to use as a benchmark is one of the preliminary points to determine in structuring an earnout.
Javier and Katsumi are about to begin discussions to craft the elements of an earnout agreement that has value for both sides, with the added challenge of navigating the often tricky waters of cross-cultural negotiations.
Under an earnout arrangement, most of the purchase price is paid on settlement, but some is paid by a series of instalments for two to three years after settlement.
The three-year loan includes a $2 million earnout available if the property meets specified performance criteria.
7 million in debt, up to $4 million in performance-based earnout payments, and management retention agreements of up to $4.
If the acquired company meets its revenue or profit targets, the earnout will provide additional post-acquisition consideration.
UK-based IT repair company CRC Group Plc has revised the deal under which it acquired mobile phone repair company AIDL Group in 1998, ending a complicated earnout arrangement that ran until 2001 with a final payment of 3.