Earnouts.
Great in Theory.
Often Lousy in Practice.


While not quite as ubiquitous as a Starbucks in Seattle, earnouts often make an appearance in mergers and acquisitions deal structures.

Theoretically, these payments, which are contingent on achieving certain financial or operating milestones, are intended to (a) bridge gaps in valuation between buyers and sellers or (b) provide sellers with incentives to sustain growth trends or execute on already identified but not yet realized performance-improving programs, contracts, or other initiatives (and theoretically, m&ms don’t melt in your hand).

So where do earnouts go off the rails?

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