Earnout part of total value of a transaction?
I have a quick question on a transaction value of a closed deal. Let's say Company A bought Company B with $100mn in cash and they were uncertain about Company B's future performance. So they will pay extra $100mn over the next 5 years based on their performance, which is an earnout. Would this make the transaction value of $200 mn? or $100mn since it's is uncertain.
Any advice would be greatly appreciated!
It's still TBD, but as for when the transactions actually closed the transaction value would have to be considered what the buyer paid for it ($100M) -- assuming it's not structured in the form of deferred compensation. It can be adjusted upward in the future should the company meet the stipulated performance/operational benchmarks.
It would be the cash paid plus PV of the earnout using OPM
do you include earnouts in transaction metrics / valuation (Originally Posted: 05/03/2010)
do you include earnouts (or deferred payments) in transaction metrics / valuation?
No, we subtract out to arrive at an "adjusted EV."
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