The Allure And Pitfalls Of Earnouts: Part 1

Law360, New York (January 31, 2018, 1:24 PM EST) -- An “earnout” is a deal mechanism that provides for a buyer to pay additional consideration after the closing if specified post-closing performance targets are achieved by the acquired business or specified post-closing events occur. An earnout can be instrumental in bridging the gap when, based on divergent views of the buyer and the seller about the likely future operating performance or the likelihood of the occurrence of certain contingencies, the parties cannot agree upfront on a purchase price.

In situations where the seller will remain involved...
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