Must Know Accounting Rules Earnouts are often used in transactions to bridge the gap between what a buyer is willing to pay up front and what a seller wants in the way of total compensation to complete a deal. Therefore, earnouts are typically constructed to allow the seller to enjoy additional upside if the acquired company reaches certain performance targets after the sale while providing the buyer with downside protection if the projected performance after the deal closes does not materialize. That said, practitioners must understand accounting rules that could result in an earnout not being deemed an earnout. The…
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How do you get buyers and sellers to execute an M&A transaction when the prospects of an industry are extremely uncertain? Part of the answer may be to structure the deal in a way that defers payment of a (significant) portion of the purchase price in the form of contingent consideration. In this blog post, Sujan Rajbhandary, vice president, interviews Travis Harms, who leads Mercer’s valuation for financial reporting practice, to get his thoughts on the new valuation guidance. To read the full article in Mercer Capital’s Financial Reporting Blog, click: Q&A: New Guidance on Valuation of Contingent Consideration (Earnouts).…
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Earnout Variables Often Account for 15 to 25 percent of Purchase Price in many Middle Market Acquisitions. Here are Tips for Structuring Them Carefully Earnouts typically appear in a large number of middle-market deals, usually accounting for 15 to 25 percent of the total purchase price. While an earnout can to be an elegant solution to “close the gap” between seller and buyer, the fact is earnouts are complicated and subject to a number of limitations. Ron Stacey explains some issues surrounding earnouts, including their appeal, shortcomings, possible structures, appropriate metrics, duration, tax treatment, and value.
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Beyond Deal Price, Consider Deal Structure, Earnouts, and Appropriate Standard of Value When one company is acquiring another, the deal price is often the primary factor considered. Too many times, however, critical issues are overlooked, explains Sean R. Saari, CPA/ABV, CVA, MBA. Smart Business spoke with Saari about five questions any business valuation any acquirer needs to consider: