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  1. 1 Managerial Economics

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  1. 1 Rolinck J.-P.

  2. 1 Toll C.

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  1. 1 2017

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Earn-outs to bridge gap between negotiation parties – curse or blessing?

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Toll C., Rolinck J.-P.
Managerial Economics
|
2017
|
vol. 18
|
issue 1
103-116
EN
An agreement upon the terms of company transactions is aggravated by the existence of different information levels concerning the negotiation parties; this can be seen as a basic cause for divergent price expectations. Hence, the question is how the existing differences in price expectations of the transaction parties can be handled to reach a consensus, even when there is no area of agreement in the initial round of negotiations. Earn-outs are an interesting approach in overcoming divergent price expectations by making the purchase price dependent on the future performance of the company. However, formulating and implementing earn-outs may have a substantial potential for conflict. The present contribution shows which advantages and disadvantages the transaction parties face if an agreement regarding earn-outs is made.
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