Earn out structure

searcher profile

May 28, 2022

by a searcher in Chicago, IL, USA

I am wondering whether anyone has a guide on how to structure an earn out? I understand that their are various ways to structure it and Im intereated to learn from Searchers who have put one together.

For example paying x 3 EBITDA with an earn out on another .5 x EBITDA

Thank you

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I am an M&A Intermediary.
1. Earnout can be (A) an adjustment price (in which case it is an additional goodwill. In an Asset purchase this additional goodwill is tax deductible over 15 yrs). or (B) earnout can be a commission-type which is an immediate expense to buyer. Seller generally prefers A, but there are situations where Seller should prefer B.
2. Earnout can be tied to sales, GP, EBITDA, widget sales, an event, etc.
3. Earnout can have threshold triggers, annual cap, cumulative cap, etc.
4. Many more options.
5. Earnout is built into www.BusinessValueXpress.com (my software)
commentor profile
Reply by a searcher
from Yeshiva University in Boca Raton, FL, USA
^redacted‌ and anyone else - I've been told that SBA does not allow earnouts in deals it is funding. Are there ways around this, or I can choose to go SBA or I can choose earnout with a different funding source? Thanks!
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