An earnout is a contractual mechanism in acquisitions that provide for contingent additional payments from the buyer of the company to the seller’s shareholders. Earnouts are usually received if the business that is acquired meets certain financial or other milestones after the acquisition is closed.
An earnout is a useful tool where the buyer and seller cannot agree on the upfront purchase price, with the earnout as a way of overcoming the different views on valuation of the business being acquired. Earnouts are primarily used in the acquisition of a privately held company which are harder to value than a publicly traded company. […]
