Mergers & Acquisitions
Aug. 12, 2016
Acquirers should disclaim good faith covenant in earnout interpretation
M&A acquirers should seek to expressly disclaim application of the implied duty of good faith and fair dealing in interpreting an earnout. By David W. Healy
Often buyers and sellers in M&A deals can't agree on valuation so they use a price adjustment mechanism, called an earnout, to bridge the valuation gap. Earnouts typically provide for additional merger consideration if certain financial or technical milestones are achieved. Achievement of milestones is often a function of the level of financial and operational support acquirers provide to the target post-acquisition. For this rea...
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