In this week’s video, M&A attorney Joe Marrow discusses earn-outs. When buyer and seller can’t agree on a price, an earn-out is an effort to bridge that gap. An earn-out mechanism allows the seller to realize more consideration in the transaction post-closing and increase the purchase price. A buyer will require a seller to set aside — or hold back — a certain amount of the purchase price funds to satisfy post-closing claims for any breaches in the purchase agreement. An M&A attorney is vital in helping to negotiate the performance metrics and performance goals that need to be properly documented in the agreement, and that tax consequences are being considered. And in some instances, an earn-out isn’t the right solution at all.
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