In General

Earnouts are used to bridge a valuation gap between a buyer and a seller. It’s a compromise, of sorts, to break a purchase-price deadlock when the seller wants more than the buyer is willing (or able) to pay.

In an earnout, a portion of the purchase price is paid out later, based on the company’s financial performance over time. Earnouts typically last from 1 to 3 years, subject to negotiation.

Some earnouts include acceleration provisions, stipulating that payments are due immediately if certain events occur, such as:

  • Buyer breach of post-closing covenants
  • Termination of key employee/s
  • Sale of the company or a substantial reduction in assets

These provisions are designed to protect the seller from changes that would hurt the company/buyer’s ability to meet their earnout targets.

Contact Lisa Riley (480) 686-9031 to learn more about deal structures and how we protect your interests in a sale.

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