A Crash Course on Earnouts

Earnouts can be important parts of many M&A deals because they connect the consideration paid to the future performance of the acquired company.

This issue brief provides an overview of what earnouts are, how they work, and how their valuation affects upfront and ongoing accounting. We also discuss contemporary and contentious valuation issues that have created a divide among valuation specialists, and how these require proactive planning and socialization no matter the valuation methodology.

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