Considering a Sale of Your Business? Be Familiar with the Concept of an Earnout

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If you are the owner of a radiology group, imaging center or other health industry service provider, you may wonder about the value of your business. If you are trying to sell your business, the answer you receive from a prospective buyer may not meet your expectations and may be downright disappointing. In such a situation, you and your potential buyer may be able to bridge a purchase price gap by using a mechanism called an “earnout”.

An earnout is an arrangement where the buyer of a business pays the seller additional consideration upon the business attaining certain predetermined goals following the closing of the acquisition. For example, if the seller believes its business is worth $20 million and the buyer believes it is worth $15 million, they could agree on an initial purchase price of $15 million to be paid at the closing, and an earnout would give the seller an opportunity to earn $5 million if the business meets the specified goals.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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