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GLOSSARY

Earn Out definition

/əːn/ /aʊt/

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What does Earn Out mean?

An arrangement whereby part of the consideration on a share or asset sale is calculated (after completion) by reference to the target company's profits and performance for a specified period following completion.

A proportion of the consideration would typically be paid on completion with the balance paid post-completion.

Earn Out - Legal Definition

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Post-completion matters (share purchase)—checklist

Post-completion matters (share purchase)—checklist This checklist briefly summaries the key tasks and responsibilities that are likely to fall to the buyer's lawyers (and in some cases the seller's lawyers) following completion of a private M&A acquisition involving a target company incorporated in England & Wales. The terms of the SPA should always be carefully checked following completion so that the parties' lawyers can appropriately diarise what has been agreed, particularly with regards to timing, by way of specific post-completion obligations of the parties. Therefore, while this checklist summarises tasks that are typically required, each transaction is different and this list cannot therefore be exhaustive. Issue Guidance Registration of share transfers Buyer's lawyers: —submit to the Stamp Office stock transfer form(s) (or declaration of trust—see note below) in relation to the target company shares, for adjudication and payment of any stamp duty/transfer taxes (within 30 days after their execution)—update the register of members of the target company (and subsidiaries)—where relevant, update the people with significant control (PSC) register (CA 2006,...

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Mergers and acquisitions in the life sciences sector

Mergers and acquisitions in the life sciences sector Life sciences is a sector in which there is significant high-value merger and acquisition (M&A) activity. This Practice Note discusses some of the factors that have driven deal flow in the industry and explores some of the key considerations legal counsel should be mindful of when representing parties to such transactions. For the purposes of this Practice Note, the life sciences sector is generally considered to include pharmaceuticals, health-oriented biotechnology products and medical devices. This Practice Note focuses on issues that are common in life sciences M&A transactions and issues that tend to assume more importance in life sciences deals than in deals in other industries. Industry-specific considerations affect nearly every aspect of a life sciences M&A deal, including: • due diligence • structuring the deal • consideration • the purchase agreement • transition arrangements Before exploring these various aspects of life sciences M&A deals, it is useful to consider some of the factors that have contributed to robust deal activity in...

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Heads of terms—private M&A—share purchase

Heads of terms—private M&A—share purchase Strictly private and confidential To: [Insert potential seller name] [Insert potential seller address] FAO: [insert name of relevant contact at the seller] Date: [insert date] Subject to contract Dear [insert name of relevant contact at the seller], Proposed acquisition of the entire issued share capital of [Insert target company name] Limited (the Company) from [Insert potential seller name] (the Seller) 1 Introduction 1.1 Further to our recent discussions, this letter sets out the principal terms and conditions upon and subject to which we, [Insert buyer name] or a member of our group of companies (the Buyer), propose to acquire the entire issued share capital of the Company (the Sale Shares) from the Seller (the Proposed Acquisition). Each of the Seller and the Buyer is a Party and together they are the Parties. 1.2 The terms in this letter are not exhaustive and[, with the exception of paragraphs [7.3,]8, 9, 10 and 11,] are subject to contract and not...

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Legal due diligence questionnaire—private M&A—share purchase

Legal due diligence questionnaire—private M&A—share purchase Dated [insert date] Introduction This legal due diligence questionnaire relates to the proposed purchase by [insert buyer name] (the Buyer) of the entire issued share capital of [insert name of target company] Limited incorporated in England and Wales under number [insert company number] (the Company) from [insert seller name] (the Seller) (the Proposed Acquisition). This questionnaire is designed to enable the Buyer, the Buyer's solicitors and other professional advisers involved in the Proposed Acquisition to obtain the information which the Buyer requires to assist in its valuation of the Company. Please answer every question fully. Please provide your answers in italics underneath each question and provide copies of all relevant documentation, ensuring that all answers and documents are clearly marked by reference to the appropriate paragraph of this questionnaire. We reserve the right to raise further enquiries in respect of both your responses to this questionnaire and generally. Definitions Business • means the business of [insert...

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What are the advantages and disadvantages of earn-outs for the buyer and seller in a share sale and purchase?

What are the advantages and disadvantages of earn-outs for the buyer and seller in a share sale and purchase? Earn-outs are most useful where the business being sold is difficult to value with accuracy. This may be because the business is too new to have built up a 'track record' or a number of sets of audited accounts, or for other reasons (eg the profits or losses of the business fluctuate in an unpredictable manner due to the nature of the business). In a typical earn-out transaction, the buyer will pay an agreed amount on completion of the acquisition (perhaps reflecting, for example, the ascertainable net value of the assets acquired), with an amount of deferred consideration being payable at one or more later dates depending on the performance of the business over an agreed period post-completion. The parties will have to agree on how that performance will be measured. This will require: • agreement on the basis of the accounts for the relevant period, including specific...

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Can you point me to recent case law concerning the court's approach to the validity of notices served under a share purchase agreement?

Can you point me to recent case law concerning the court's approach to the validity of notices served under a share purchase agreement? Set out below are recent cases concerning the validity of notices served under a share purchase agreement (SPA). In the case of Treatt v Barratt, the Court of Appeal considered whether an earn-out notice was valid. The notice had been correctly served by the buyer and the seller did not invoke the SPA dispute resolution provisions in respect of the notice so served. However, the seller claimed that the notice itself was invalid, thus it would not be bound by the buyer's valuation. The SPA provided for the earn-out to be calculated by reference to the pre-tax profit of the two groups of companies sold as ascertained from the audited accounts of each group for two calendar years ending 31 December 2011. However, following completion the buyer changed the accounting reference date of the groups (aligning them with its own accounting reference...

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Corporate weekly highlights—4 July 2024

This week's edition of Corporate weekly highlights includes: details of the cases of Re Network International Holdings Plc in which the Chancery Division held it had the jurisdiction to vary/extend the long stop date for a scheme of arrangement under Part 26 of the Companies Act 2006, European Bank for Reconstruction and Development v Vysoka where the Commercial Court allowed EBRD’s application for default judgment and granted a final injunction that restrained the defendants from proceeding with and passing any resolution to increase the share capital of a company subject to a shareholders’ agreement, and Wagner v Bright Station Ventures Management Ltd, in which the King's Bench Division ruled among other matters on whether certain directors’ duties had been breached in relation to losses allegedly suffered by a company as a result of its director’s failure to ensure that the relevant company had maintained proper books, records and accounts.

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Latest market trends and developments in the private equity buyout sphere

Corporate analysis: Chris Hale, chair emeritus and senior consultant, and Adam Orr, partner and head of the management advisory group, both of Travers Smith explore current trends and recent developments in the UK’s private equity (PE) buyout sphere.

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