Earn out arrangements in business acquisitions

Earn-out arrangements, in which a portion of the purchase price in an acquisition of a company is made dependent on future results, can be designed in numerous ways. Increasingly, we see that the seller is asked to co-finance the purchase by paying back part of the purchase price in exchange for issuing shares in the purchasing company. Those shares would then still be sold after the earn-out period, usually based on a pre-agreed valuation method.

These types of structures can work, but are also not without danger because the interests between seller and buyer are less aligned than you might think. That's what this podcast by Tom Teggelaar is about.