Earnouts: Advantages, Disadvantages and How to Structure Them

Roque Romero, Regional General Counsel - Europe, Agility Logistics

Mergers and acquisitions professionals often disagree on whether the use of earnouts is advisable for completing business acquisitions. Although earnouts can certainly help the parties complete a deal, experience has shown that they may be detrimental in the long run. If not adequately used or structured, earnouts can not only damage the performance of the acquired business, but they can also turn the expectation of a successful deal into the disappointment of a bitter and costly legal dispute. In this paper, the author first explains the notion of earnouts and presents his views on its advantages and disadvantages from the perspective of both the seller and the buyer. He then goes through various issues that should be taken into consideration when structuring earnouts and provides insights on how to deal with them. The author finally concludes this paper by providing six main takeaways that should be remembered when structuring earnouts.

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UK Management General February 2013 Vol. 6, No. 22, Winter 2013

Roque Romero

Roque Romero is Regional General Counsel – Europe at Agility, a global logistics services provider, where he also served as legal counsel for the Middle East region. Prior to Agility, he worked as legal counsel for various international companies, particularly in the natural resources sector. He has lived and worked in Latin America, the Middle East and Europe and is currently based in Basel, Switzerland. He holds MBA and LLM degrees from the University of Dundee (Scotland) and an LLB from Universidad de Lima (Peru).

Agility Logistics

Agility is a global logistics services provider with corporate headquarters in Kuwait. It has USD 4.8 billion in revenue and is listed in both the Kuwait Stock Exchange and the Dubai Financial Market. With its roots in the Middle East, Agility has grown organically and through acquisitions to become a leading global logistics services provider with over 22,000 employees and more than 500 offices in 100 countries, and has a strong and growing presence in emerging markets.

UK Management General February 2013 Vol. 6, No. 22, Winter 2013