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Earnouts: Advantages, Disadvantages and How to Structure Them

February 2013
ManagementGeneral

Abstract

Mergers and acquisitions professionals often disagree on whether the use of earnouts is advisable for completing business acquisitions. Although earnouts can certainly help the parties complete a deal, experience has shown that they may be detrimental in the long run. If not adequately used or structured, earnouts can not only damage the performance of the acquired business, but they can also turn the expectation of a successful deal into the disappointment of a bitter and costly legal dispute. In this paper, the author first explains the notion of earnouts and presents his views on its advantages and disadvantages from the perspective of both the seller and the buyer. He then goes through various issues that should be taken into consideration when structuring earnouts and provides insights on how to deal with them. The author finally concludes this paper by providing six main takeaways that should be remembered when structuring earnouts.

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Author

Roque Romero
Regional General Counsel - Europe, Agility Logistics, Switzerland

Roque Romero is Regional General Counsel – Europe at Agility Logistics, a global logistics services provider, where he also served as legal counsel for the Middle East region. Prior to Agility, he worked as legal counsel for various international companies, particularly in the natural resources sector. He holds MBA and LLM degrees from the University of Dundee and an LLB from Universidad de Lima.

Company

Agility Logistics

Agility Logistics is a global logistics services provider with more than 22,000 employees in over 550 offices and 100 countries. It is listed both in the Kuwait Stock Exchange and the Dubai Financial Market

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