Negotiating Earnouts in M&A Transactions: Effective Approaches to Bridging the Valuation Gap

Structuring Clauses to Protect Buyers and Sellers and Reduce Post-Closing Disputes

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, July 25, 2019

Recorded event now available

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Program Materials

This CLE webinar will guide deal counsel in negotiating and structuring earnout clauses in M&A agreements that benefit buyers and sellers and reduce the likelihood of post-closing disputes.

Description

M&A transactions routinely include earnout provisions as a valuation-bridging mechanism to alleviate concerns by both parties about tendering or receiving a fair purchase price. Earnouts can allow either an upward price adjustment post-closing--when sufficient value is created to justify a higher purchase amount--or innovative financing for an originally agreed upon price.

While earnouts are a beneficial tool for parties in M&A deals, provisions governing earnouts are complicated and fraught with risk. 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 relating to the calculation of the earnout and the parties' respective obligations.

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.

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Outline

  1. Earnouts
    1. Advantages and disadvantages of earnouts
    2. Relevant performance benchmarks
    3. Current market trends
  2. Structuring earnout provisions
    1. Determining operating control issues
    2. Dealing with unanticipated events
    3. Post-closing activity by buyer and seller
    4. Drafting considerations to minimize disputes
    5. Tax implications

Benefits

The panel will review these and other challenging issues:

  • What approaches are effective in negotiating performance benchmarks for deals involving earnout provisions?
  • What post-closing concerns should buyers and sellers anticipate and address during deal negotiations?
  • What are the tax issues that counsel must understand and consider regarding earnouts?

Faculty

Letang, Christopher
Christopher Letang

Managing Director, Professional Services
SRS Acquiom

Mr. Letang has deep expertise in shareholder representation. He and his team manage post-closing escrow claims,...  |  Read More

Paterno, Tatjana
Tatjana Paterno

Member
Bass Berry & Sims

Ms. Paterno has represented numerous national companies and private equity firms in M&A transactions valued at...  |  Read More

Sewell, Tyler
Tyler J. Sewell

Partner
Morrison & Foerster

Mr. Sewell is a partner in the Corporate Department of Morrison & Foerster’s Denver office, specializing in...  |  Read More

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