WebCredenza 2024 Earnouts: Taking a wait and see approach to valuation of closely held companies

The most highly negotiated provision of most transactions is price. Sellers want to maximize the value of the deal, putting the most optimistic spin historical and forward-looking projections.  Sellers take a more skeptical view, questioning the sustainability of growth and the accuracy of forecasts.  When differences over valuation cannotbe bridged, the parties may use an earnout, which allows them to both take a wait-and-see approach and still close the transaction. Earnouts generally involve a current payment from buyer to seller together with ongoing payments to the seller if the company performs as the seller projected.  But there are many drafting and operational traps when using earnouts.  This program will provide you with a practical guide to structuring and drafting earnouts to later disputes and litigation.

• Most highly negotiated and litigated provisions in earnout agreements.
• Post-closing operations – control by buyer, but informational access to seller.
• Defining key metrics – objective, measurable and potential traps.
• Relationship of earnouts to senior debt and other preferential returns.
• Debt issues and how it impacts financial results – and post-closing payments.
• How earnouts are different than escrow and holdbacks.

Opinions and positions stated by presenters of MoBarCLE programs are those of the presenters and not necessarily those of The Missouri Bar. This program is intended as information for lawyers in Missouri, in conjunction with other research they deem necessary, in the exercise of their independent judgment.