EARNOUTS: Breaking The M&A Deadlock

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EARNOUTS: Breaking The M&A Deadlock

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 e.g.,:

Buyer breach of post-closing covenants

Termination of key employees

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 us to learn more about deal structures and how we protect your interests in a sale.

By Scott Bushkie

Scott Bushkie is Managing Partner and Founder of DealCoach.

With more than 20 years in the Mergers and Acquisitions (M&A) industry, Scott is a recognized leader in the field, providing exit strategies, business valuations, and M&A advisory services to business owners in the lower middle market. He has successfully executed sales to domestic and international buyers, private equity firms, family offices, and strategic buyers.

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About DealCoach

DealCoach is headquartered in Green Bay Wisconsin with an office in Milwaukee Wisconsin and helps customers find out how much their business is worth with online business valuations and advisory services. Our business valuations also known as an Estimate of Value (EOV), help prepare buyers and sellers for the sale.  DealCoach also helps business owners grow value with a Business and Market Analysis and plan for retirement, estate & financial planning, benchmarking, and strategic planning. DealCoach servers and has provided business valuations for businesses located in the United States and Canada. 

We are here to tell you what you need to hear in order to make a well-informed decision with most likely the largest financial transaction of your life. Our team has over two decades of M&A experience, and we have been completing Estimates of Value for our clients for over nine years.

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