Buyers and sellers looking to close a valuation gap are increasingly turning to earnouts. That's why the provision, which allows a seller to receive payouts over time based on the target's performance, is a
frequent topic at The Deal.
The
latest commentary comes from Jeffrey M. Katz, a partner and practice leader with BDO Consulting. In "The earnout fallout," in the latest issue of The Deal magazine, Katz writes about the rise in post-acquisition disputes that will invariably follow the appearance of earnouts in more deals.
Many disputes, writes Katz, will arise from the "estimates and judgments inherent in following GAAP." Others will come as sellers denied earnout payments challenge the business judgment of buyers.
With millions of dollars often hanging in the balance, disagreements will invariably arise when earnouts are not earned. An M&A agreement with explicit instructions on how payments are calculated, however, can help lessen the fallout. -
Suzanne Stevens
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