Putting Your Money Where Your Mouth Is: The Performance of Earnouts in Corporate Acquisitions

Quinn, Brian Jm

doi:10.2139/ssrn.1958617

Cited by 9 publications

(3 citation statements)

References 2 publications

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“…It was noticed, in line with the observations of a number of authors (Allee & Wangerin 2018;Bates et al 2018;Cadman et al, 2014;Datar et al, 2001;Erel, 2018;KPMG, 2021;Quinn, 2012;Tanure & Cançado, 2005;Zilveti & Nocetti, 2020), the growing use of transactions with suspensive payment linked to performance metrics with greater intensity in the Medical Services and Information Technology segments and in businesses of a different nature from the buyer. Such phenomena are probably attributable to the fact that these transactions bring greater uncertainty to the forecast of future growth and results, given that the acquired companies have not yet reached their economic maturity, but generally have disruptive technologies embedded in the business and with great potential for success.…”

Section: Discussionsupporting

confidence: 68%

“…This trend can be attributed to the challenges faced by buyers in estimating the future potential profit of innovative businesses, where the measurement of intangibles is inherently complex (Datar et al, 2001). These industries heavily rely on human capital to achieve their goals, adding another layer of complexity (Quinn, 2012). Moreover, many of these transactions involve privately held companies, amplifying the significance of informational asymmetry (Datar et al, 2001).…”

Section: Resultsmentioning

confidence: 99%

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Earnout in M and A operations in Brazil and their impact on Equity Valuation

Maciel de Aquino,

Cunha Dower,

Dal-Ri Murcia

et al. 2024

RANAC

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Propósito: Evaluar el registro de información relacionada con transacciones de M and A (Mergers and Acquisitions) que contenían earnout como contraprestación contingente de acuerdo con la norma contable IFRS 3 – Business Combination y los aspectos de la revelación de información requerido por el IASB Conceptual Framework for Financial Reporting.Metodología: Investigación exploratoria, descriptiva y cualitativa que buscó, en una visión tridimensional, analizar los aspectos económicos, legales y contables de las transacciones de combinación de negocios realizadas con la adopción de Earnout. Consideradas todas las operaciones de fusiones y adquisiciones realizadas en Brasil de 2016 a 2020 por empresas listadas en la Bolsa de Valores de Brasil y que contenían Earnout.Resultados: Se observó que las empresas adquirentes cumplen con los requisitos regulatorios de la IFRS 3; sin embargo, no aportan uniformidad, integridad y transparencia a la información divulgada sobre las transacciones que contenían earnout.Implicaciones prácticas: Revela la necesidad de repensar los criterios de divulgación de las transacciones con earnout y brindar información útil a los stakeholders a través de los estados financieros y sus notas explicativas con el fin de permitir a las partes interesadas comprender la estructura financiera de la operación y sus posibles impactos futuros en los estados financieros.Valor: Esta investigación contribuye al mercado de capitales, a los reguladores y a otras partes interesadas al demostrar las características económicas y legales frente al tratamiento contable atribuido al earnout en transacciones de fusiones y adquisiciones, llenando un vacío bibliográfico y arrojando luz sobre la necesidad de repensar los criterios. para la divulgación de información útil.

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Section: Discussionsupporting

confidence: 68%

Section: Resultsmentioning

confidence: 99%

Earnout in M and A operations in Brazil and their impact on Equity Valuation

Maciel de Aquino,

Cunha Dower,

Dal-Ri Murcia

et al. 2024

RANAC

View full text Add to dashboard Cite

show abstract

“…My first prediction is that targets with more opaque information rely more on contract structures that mitigate adverse selection. The literature has already described one such contract structure, the earnout (a form of contingent payment based on the target's performance, relative to standards specified in the purchase agreement; Kohers and Ang [2000], Datar, Frankel, and Wolfson [2001], Cain, Denis, and Denis [2011], Quinn [2012], Cadman, Carrizosa, and Faurel [2014]). A previously unexplored yet more commonly used contract term in private transactions is seller financing—debt retained by the seller collateralized by a lien on the assets of the firm being sold.…”

Section: Introductionmentioning

confidence: 99%

Resolving Information Asymmetry Through Contractual Risk Sharing: The Case of Private Firm Acquisitions

Jansen

2020

J of Accounting Research

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When private firms are acquired, buyers commonly rely on seller financing and earnouts. Using a novel database of private acquisitions, I find that seller financing and earnouts become more common as information asymmetry increases between the acquirer and the target. Financial statement audits of the targets attenuate these results, which suggests that audits decrease information asymmetry in firm acquisitions. Seller-financed acquisitions also close faster and at higher prices, reducing the private firm discount. These findings suggest that these contract structures are an important channel through

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Earn-Outs: Mitigating Risk and Bridging Value Expectations in M&A

Nistorenco

2019

Global Versus Local Perspectives on Finance and Accounting

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Putting Your Money Where Your Mouth Is: The Performance of Earnouts in Corporate Acquisitions

Cited by 9 publications

References 2 publications

Earnout in M and A operations in Brazil and their impact on Equity Valuation

Earnout in M and A operations in Brazil and their impact on Equity Valuation

Resolving Information Asymmetry Through Contractual Risk Sharing: The Case of Private Firm Acquisitions

Earn-Outs: Mitigating Risk and Bridging Value Expectations in M&A

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