Expert advice you can trust
0333 3440 778 - brokers@opusllp.com
What is an Earn-out?
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Simply put an Earn-out is a method of linking deferred payments to the future performance of a business sold.
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Is an Earn-out right for me?
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Generally speaking an Earn-out should not be a seller’s first choice, however in some cases this may be the only way to achieve the vendor's desired upper valuation.
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In other cases the business may have issues or suffered a bad period of trading leading to temporarily reduced financial performance. In this instance an Earn-out might be necessary to convince the buyer the business can overcome these challenges and puts the seller to the test of delivering against targets.
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You should only agree to an Earn-Out if you can dedicate yourself to running your business with enthusiasm, most Earn-outs last between 12-36 months and during this time you will be working with the new owners.
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It is likely that up to 50% or more of the consideration will be paid through the Earn-out provision of the agreement. Therefore it is important the payments are graded. You don’t want to receive 0% for missing a target but instead a reduced payment should be agreed linked to the financial performance levels of the business.
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What are the benefits of an Earn-out?
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In some cases an Earn-out will be the only viable way to complete a deal in these cases the benefit is to bring the negotiations to a successful completion.
An Earn-out might also be the only way to achieve the vendors desired valuation, as long as the targets can be met this option can secure a premium for the business which the buyer is more inclined to pay due to the payments being spread out over a period of time.
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Talk to a Business Broker about an earn-out
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If you have received an earn-out offer and need advice on whether it is right for you call us today to receive a free consultation on a no obligation basis.
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It is important that an earn-out is properly structured and that the appropriate vendor protections are included in the agreement.
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0333 3440 778 - cf@opusllp.com