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Earn Outs in M&A Transactions

Earn outs are a form of contingent consideration often used in deals, particularly middle market transactions. The buyer pays additional consideration if specific performance targets are achieved or events occur. Earn outs are used: to bridge valuation gaps (which widened in the recent sellers’ market), to motivate management in the short to medium term, to hedge risk in high-growth, competitive sectors such as software or tech-driven services, and to align interests in businesses that are reliant on the seller’s management to remain involved to execute on growth plans. How often are earn outs used? Over the past few years, earn outs have been used at varying rates. In 2019, 22% … [Read more...]

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