Both buyers and sellers should be wary about the recent rise
of earnouts in M&A.
The tool, a contractual provision which bases part of the
purchase price on the business achieving certain financial
targets, can be valuable – but are more often fiddly
and time-consuming, and can result in litigation.
Earnouts are certainly not new to M&A practitioners but
have become more common in recent years, particularly in tech
acquisitions. They’re often used when
there’s a mismatch between buyer and
seller’s valuation expectations.
Earnouts have been the rule rather than the
exception in life sciences for some timeBut according
to speakers at IFLR’s European M&A Forum last
week, there are more...