Earnouts in M&A transactions By Michael O'Bryan and Raymond T. Hum

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In the wake of the volatility that has affected virtually all markets, the inherently difficult task of agreeing on the price of a business in an acquisition has become even more challenging. Sellers may expect a quick recovery in their businesses or in general market valuations and hold optimistic views of values. Buyers may be focused on today’s prices and unwilling to bet on a quick recovery. How can parties with these seemingly conflicting concerns reach an agreement? Increasingly, sellers and buyers are turning to earnouts, which can help accommodate different views about the long-term value of a business, but they also add complexity, and can be a basis for disputes, so require careful consideration and structuring.

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