Earnout
An earnout is a contractual provision used in mergers and acquisitions where the seller receives additional compensation if the business meets specified financial targets after the sale. This structure aligns the interests of both buyer and seller by tying part of the purchase price to the company's future performance. Earnouts are often used when there is uncertainty about the company’s potential.
Key Takeaways
- Earnouts provide additional compensation based on future performance.
- Aligns buyer and seller interests.
- Common in mergers and acquisitions.
- Incentivizes continued business success.
