ANALYSIS: Earnouts Are Showing Up in More M&A Deals—and Lawsuits (Correct)

With the M&A market adapting to a reviving but uncertain economy, the rising use of earnout provisions suggests that dealmakers are seeking a shortcut solution to financing challenges that will also help close the valuation gap between parties.

But there’s a potential downside: Earnouts tend to be complex deal devices that often result in post-closing disputes—and the prevalence of those disputes is on the rise as well. Parties considering adding earnouts to their agreements would do well to treat these cases as cautionary tales that could help them avoid litigation later.

Earnouts Gaining Ground in Dealmaking

An earnout is an ...