{"id":560636,"date":"2012-06-27T03:20:19","date_gmt":"2012-06-27T07:20:19","guid":{"rendered":"https:\/\/vrbbd.wpengine.com\/vrbbgreenbay\/an-update-earnouts\/"},"modified":"2022-01-31T12:44:38","modified_gmt":"2022-01-31T17:44:38","slug":"an-update-earnouts","status":"publish","type":"post","link":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/an-update-earnouts\/","title":{"rendered":"An Update on Earnouts"},"content":{"rendered":"<div>\n<p>New accounting rules may require that acquirers and acquiring companies report earnout agreements as liabilities.<\/p>\n<p>Joel Johnson, president of Orchard Partners Inc., in his article, \u201cEarnouts,\u201d published by Valuation Strategies, states: &#8220;In a given year, 2% &#8211; 3% of announced mergers and acquisition agreements involve earnouts.\u00a0 These figures probably understate their prevalence.\u00a0 Earnouts tend to be a characteristic of smaller deals; and in many small deals, terms are not announced.\u00a0 Earnouts are rare when public companies are acquired and more common when ownership is concentrated among a few shareholders.&#8221;<\/p>\n<p>This would mean, if implemented, that earnout agreements must have a value placed on them for accounting purposes. As Joel Johnson points out, \u201cThe higher the earnout, the greater the liability.\u201d<\/p>\n<p><strong><b>Why the Earnout?<\/strong><\/b><\/p>\n<p>Johnson further states that earnouts are used for various reasons:<\/p>\n<p>1.\u00a0to bridge the pricing gap between the seller who places a heavy emphasis on the company&#8217;s projections, and the buyer who places most of the company&#8217;s value on its present and past performance.<br \/>\n2.\u00a0to tie the acquisition payout to future performance.<br \/>\n3.\u00a0to create a form of seller financing in that some of the buyer&#8217;s purchase price is delayed into the future. 4.\u00a0to establish a form of escrow account in that the money is paid on condition of meeting certain thresholds.<br \/>\n5.\u00a0to act as a type of employment agreement in that the CEO has to stick around in order to collect.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>New accounting rules may require that acquirers and acquiring companies report earnout agreements as liabilities. Joel Johnson, president of Orchard Partners Inc., in his article, \u201cEarnouts,\u201d published by Valuation Strategies, states: &#8220;In a given year, 2% &#8211; 3% of announced mergers and acquisition agreements involve earnouts.\u00a0 These figures probably understate their prevalence.\u00a0 Earnouts tend to [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[],"class_list":["post-560636","post","type-post","status-publish","format-standard","hentry","category-selling-a-business"],"blocksy_meta":[],"_links":{"self":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560636","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/comments?post=560636"}],"version-history":[{"count":0,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/posts\/560636\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/media?parent=560636"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/categories?post=560636"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vrbusinessbrokers.com\/vrbbgreenbay\/wp-json\/wp\/v2\/tags?post=560636"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}