An earnout is a type of payment agreement which is sometimes used in a business acquisition. Under an earnout agreement, the seller receives part of the purchase price up front, and additional funds over time. The terms of the earnout are written into the sales contract. An earnout can be used for different reasons: To tie the acquisition payout to future performance An earnout, in a business acquisition context, is an arrangement in which the buyer doesn't pay the entire purchase price up front but agrees to pay a certain amount now and more later depending on how well the business performs in the future. To bridge the pricing gap If there is a valuation gap between the buyer and seller, and there always is, it is a way to bridge the gap. The seller may be placing a heavier emphasis on the company's projections, and the buyer placing most of the company's value on its present and past performance. An earnout agreement is a useful tool to get the deal done. In an uncertain economic climate, the ...

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