Earn-OutStructures •Buyer:Usuallywantstobasetheearn-outonthe seller’sstandaloneprofitability(i.e.ome) •Seller:Usuallywantstobasetheearn-outonrevenue, orcombinedrevenue,or“assistedrevenue” •Compromise:OftenuseEBITorEBITDAtargets •Tiers:Canhavemanytiersand“levels”,evenmorethan ...
andfurthercomparestheriskpreventioneffectsofEarn-outandperformance-basedcompensationmechanism.InthisthesisIreviewedtheliteratureonperformancecompensationcommitmentsandEarn-outpaymentstructuresforM&Ariskandfindthattheybothhavethefunctionsofreducinginformationasymmetry,incentivizingmanagementtoreducemoralhazard,andenhancingthe...
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• Buyer: “Then let’s compromise and use an earn-out – if you’re right, you’ll make bank! If not, still get something” Earn-Out Structures • Buyer: Usually wants to base the earn-out on the seller’s standalone profitability (i.e. e) • Seller: Usually wants to base...