Negotiating Earn-Out Provisions

About the Course:

Earn-outs are often crucial for consummating acquisitions because they can bridge gaps in valuation perspectives. Earn-outs are helpful in achieving smooth transitions in the ownership of a company. Earn-outs are a convenient tool for slowing down acquisition negotiations. Finally, earn-outs are an effective gambit for serial acquirers since they disguise preceding acquisition prices.

This webinar is unique in that not only are general earn-out structuring and negotiating issues discussed, but many practical insights are imparted relative to the associated taxation issues.

The following are among the issues raised relative to negotiating earn-out structuring options:

  • Even when well represented by a taxation professional, why is it important that a seller be involved in designing the earn-out tax strategy?
  • How can buyers and sellers come to an understanding regarding the control of the business unit upon which the earn-out is based?
  • Which instruments can be used to secure earn-outs?
  • What could an adverse consequence of a seller missing the first milestone be?
  • Can a buyer have an option to buy out an earn-out?
  • What credit facility-related issues should be discussed when negotiating earn-outs?
  • What are offset rights and how might they impact negotiations surrounding earn-outs?
  • What are acceleration events? Who should seek them, the buyer or the seller?

The following are among the taxation issues—that may arise in relation to earn-outs—that are discussed during the session:

  • How can the characterization of consideration enable the buyer to reduce its tax liabilities, and therefore pass more consideration to the seller?
  • What are some of the assets that are excluded from installment sale treatment?
  • What are some of the risks of putting cash in escrow accounts to secure earn-outs?
  • What are some of the consequences of pledging installment notes as collateral for loans?
  • When can a taxpayer be liable for interest on deferred tax liabilities related to earn-outs?
  • What are the risks associated with putting dollar caps on earn-outs in terms of income recognition?
  • What are the pros and cons of specifying outside time limits to receive earn-outs from a taxation point of view?

Course Leaders:

Christopher M. Flanagan, Partner, Locke Lord LLP

Christopher M. Flanagan is a partner in Locke Lord’s Tax Group in its Boston office. His general corporate and partnership tax practice focuses on tax planning and analysis in the transactional area. He has particular experience in representing public and private companies in taxable and tax-free acquisitions and divestitures of corporate subsidiaries and divisions, and in reorganizations and restructurings. Chris also represents companies in the structuring and formation of major corporate joint ventures, limited liability companies, and large venture capital/private equity funds, as well as advising companies on the tax issues attendant to both public and private debt and equity offerings.

Andrew K. Hughes, Partner, Locke Lord LLP

Andrew Hughes is a Partner in Locke Lord’s Private Equity & Venture Capital Group. He advises private equity firms and strategic companies in acquisitions, sales, and restructurings and investors and growth companies in venture financings. He also provides general corporate counsel to private companies.

Course Length: Approx. 1.5 hours


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Need help purchasing this course? Please contact Neomi Barazani at 609-919-1895 ext. 100 or at