Earn-out headline against expected payment, as a share of transaction value

Each line names a claim related to this exhibit, its source, and how it was checked.

• A A verified against the printed page of the primary sourceB primary source, text layer onlyC authoritative secondaryD reported Contract size and shape: maximum earn-out $21 million on average, median $5 million; 33% of transaction value on average if paid in full (median 28%; Table 2, p. 156, read on the page image: 447 deals, mean 33.4%, median 27.7%; SDC-reported 990 deals, mean 32.7%, median 28.6%); 90% contingent on the target alone; linear (42%) or stepwise (40%) to a cap; the median target must grow 18% before any payment and over a quarter need no growth (pp. 152, 154 to 156): "the maximum earnout that could be paid per acquisition is $21 million, with a median of $5 million"; "Conditional on the maximum being paid, the earnout constitutes 33% of the total transaction value"; "the earnout is contingent on the performance of the target firm only"; "a linear function of the target's performance subject to a maximum (42% of the sample)"; "a stepwise function of the target's performance subject to a maximum (40% of the sample)"; "the median target must improve its performance by 18% relative to the prior year's level"; "over 25% of the targets need not improve performance at all"Cain, Denis and Denis (2011)
• A A verified against the printed page of the primary sourceB primary source, text layer onlyC authoritative secondaryD reported A Monte Carlo of 127 contracts with prior-year data, drawing performance from a distribution centred on the prior-year level (no growth), puts the expected payment at 13.8% of transaction value on average (median 6.0%, Table 6, p. 164, read on the page image) against the SDC-recorded 32.7% for all deals; about 19% expect zero; the SDC figures are an upper bound in most acquisitions (pp. 163, 164): "assuming a normal distribution with a mean equal to the pre-acquisition performance level"; "the expected earnout payment is equal to $2.4 million and constitutes 13.8% of the total transaction value"; "the SDC-reported earnout contracts represented an average amount of $22.3 million, or 32.7% of transaction value"; "these numbers appear to represent an upper bound, rather than an expectation of the potential earnout payoffs in most acquisitions"; "about 19% of our sample firms exhibit an expected earnout payoff of zero"Cain, Denis and Denis (2011)