Panacea for M&A dealmaking? Investor perceptions of earnouts

Niklas Dahlen, Alexander Lahmann and Maximilian Schreiter

Finance Research Letters, 2024, vol. 60, issue C

Abstract: We survey 129 investors from private equity firms, investment banks, corporate M&A and other M&A-related roles about their perception of earnouts. The results indicate that earnouts are applied to reduce information asymmetries and to bridge negative agreement zones in transactions. While these findings are largely aligned with the academic perspectives, we reveal several discrepancies to existing theory with respect to motives, valuation and associated costs. This is the first study that incorporates the view of M&A professionals and thus attempts to bridge the gap between academics and professionals. In addition, it provides impulses for further academic work on earnouts.

Keywords: Earnout; Contingent payments; Contingent claims; Survey; Mergers and acquisitions (search for similar items in EconPapers)
JEL-codes: G13 G15 G20 G32 G34 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012229

DOI: 10.1016/j.frl.2023.104850

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