Earn-Outs & Post-Closing Integration

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Earn-outs, a contingent purchase price adjustment mechanism, are a common feature of private M&A transactions, especially where there is some uncertainty around valuation and future performance.  For example, a motivated buyer enticed by future growth projections may be prepared to pay a higher multiple of earnings for a business than other prospective purchasers but, in exchange for doing so, may require that a portion of the purchase price be contingent on the business achieving those growth projections. If the seller believes the proposed growth targets are attainable and wishes to extract the higher pricing, it may be agreeable to an earn-out.

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