An arrangement where at least part of the purchase price on the sale and purchase of a business is calculated by reference to the future performance of the business being purchased. Commonly used as a management incentive where owner-managed businesses are sold and the managers continue to work in the business following the sale.
+ earn-out
USA
An arrangement where at least part of the purchase price of a business is calculated by reference to the future performance of the business being purchased. An earn-out is typically structured as one or more contingent payments after the closing which are payable on the satisfaction of certain milestones (such as future sales targets). An earn-out can be used as an incentive for management where the prior owner continues to manage the business following the sale.
For a discussion of earn-outs, see Practice Note, Earn-outs (www.practicallaw.com/0-500-1650).
Related links
Practical Law Dictionary. Glossary of UK, US and international legal terms. www.practicallaw.com. 2010.