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Yonder Window Breaks: Earnout Covenants in Acquisitions
Wyrick Robbins – Earnouts, which provide sellers payouts if certain post-closing milestones are reached, have become increasingly popular in recent M&A transactions given today’s uncertain regulatory and financial climate. Inflation, supply chain failures, war, fuel shortages, COVID and other health crises have all contributed to deal uncertainty and the resulting increased use of earnouts. But a recent Second Circuit decision involving the acquisition of a software company illustrates some of the pitfalls in drafting earnout provisions. If you’re a government contractor thinking of a transaction, check this decision out.