Series 79 practice questionmediumEarnouts
In a private company acquisition with an earnout, what is a common source of post-closing dispute between buyer and seller?
- AThe acquirer’s ability to terminate employees after closing
- BTax indemnification for pre-closing periods
- CCalculation of financial metrics used to determine earnout payments✓ Correct answer
- DThe legal responsibility for environmental liabilities
Explanation
Why C — Calculation of financial metrics used to determine earnout payments
Earnout disputes frequently arise over how financial metrics are calculated, impacting whether earnout payments are made. Misunderstanding this can lead to poorly drafted earnout provisions and litigation.
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