Watch the webinar recording below for insights from our expert panel that explain why earn-outs are used, how to account for them, and dispute resolution.
Here's what’s covered:
- Why earn-outs are used on transactions and current market trends
- Accounting aspects of earn-out mechanisms in Sale and Purchase Agreements (SPA)
- Tax considerations
- How to account for earn-outs
- Calculating and determining earn-outs post-deal
- Resolving earn-out disputes
1 Get the underlying principles of the earn-out focusing on alignment agreed and in writing before moving into negotiating the detail
2 Don't leave the negotiation of the earn-out definitions and accounting aspects to the end – one of the key objectives for drafting financial earn-outs is ensuring the actual calculation is prepared on a consistent basis with the earn-out target
3 Earn-outs are sensitive from a tax perspective and the consequences of not engaging with the tax position early on in negotiations can be significant
4 The distinction between consideration and remuneration is typically locked into the SPA, so it's important to consider early if there's a particular accounting outcome in mind
5 From the day after completion, it should be the objective of the buyer to set up processes and procedures to be able to prepare a set of earn-out accounts based on the requirements of the SPA
6 As earn-outs are prone to disputes, it's essential to provide for a robust dispute resolution process in the SPA
For more information or to arrange a meeting get in touch with Patrick O’Brien.