M&A Earnouts and Economic Uncertainty: Negotiating and Structuring, Best Practices for Avoiding Disputes

Description

Due to the economic uncertainty created by COVID-19, buyers and sellers of companies are less likely to predict the future performance of a target business, and M&A transactions are more likely to include earnouts (and in more significant amounts) than before. Earnouts can be useful in allocating the future risks and rewards of a target business but have become more challenging to design and implement in the current economic environment.

Earnouts often deter disagreements during the negotiation of the deal price only to result in post-closing disputes over the earnout itself. Counsel must draft explicit, specific, business-contextualized provisions and procedures on calculating the earnout and the parties' respective obligations. A key objective is to avoid disputes over the achievement of the earnout post-closing or resolve them quickly.

Listen as our authoritative panel explains recent trends in the use of earnouts, the pros and cons of including them in M&A deals, and strategies for structuring earnout terms in a way that benefits and protects both buyers and sellers.