Valuation experts who advise in M&A should be interested in a new research paper that examines earnouts. The paper finds that earnout-based M&As yield higher returns relative to the acquirer than M&As without earnouts, particularly in small deals and those involving a great deal of intangible assets. “Acquirers realize the highest returns from earnouts when the deferred payment is around 30% of deal value,” the paper says. “The Real Effects of Earnout Contracts in M&As” is by Leonidas G. Barbopoulos and Jo Danbolt, who are both with the University of Edinburgh Business School in Scotland. The paper appears in the Journal of Financial Research.
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