Lessons From Del. On Good Faith, Fair Dealing In Earnouts

Law360, New York (August 18, 2016, 1:00 PM EDT) -- An “earnout” in a merger and acquisition transaction conditions a portion of the purchase price on the acquired business’ performance after its acquisition, with payment contingent upon meeting defined milestones or metrics in a specified post-closing period. Earnouts bridge valuation gaps between buyers and sellers, and are more frequently implemented when the nature of the business or other conditions undermine the transaction parties’ ability to agree on the future prospects and ultimate value of a business. Impending elections, macroeconomic uncertainty, volatile equities markets and geopolitical tensions currently provide fertile ground for increased reliance on earnout structures to complete M&A deals....

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