Best Practices for Earnout Structures in Rollups

September 15, 2021
by a searcher from University of Notre Dame in Dublin, OH, USA
We are looking at a potential acquisition in an industry where earnouts are very common. As a complication, this opportunity would also be ideal for a rollup (or at least a couple add-on acquisitions in the near-term).
With this in mind, can anyone suggest any resources regarding best practices for structuring an earnout in this situation?
The concern is that if the earnout were subject to static EBITDA thresholds, then the Company would be motivated to make a lot of add-on acquisitions (regardless of quality) to get over the EBITDA threshold.
Given this setup, how could the earnout be structured to accommodate future add-on acquisitions without being overly complex or creating perverse incentives.
Appreciate any thoughts and/or resources. Thanks
from University of Notre Dame in Dublin, OH, USA
Said differently, the vision would be for the tuck-ins to provide local sales and customer support in their geography while the centralized platform HQ would process the work.
from IE Business School in Denver, CO, USA