Earnouts still divide opinion

Author: Lizzie Meager | Published: 5 Oct 2017

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...