By Rebecca Cochrane and Kyra
Flomen
The evolving trade relations between Canada and the United
States since the start of President Trump's second term have
created considerable uncertainty in the capital markets. From the
threat of tariff application to proposed regulatory changes, this
new uncertainty has fostered a "wait and see" mentality
among many market participants in the mergers and acquisitions
(M&A) space. One possible solution for those looking to make
deals while shielding themselves from potential risk presented by
these new market conditions is the reliance on earnouts as a
flexible structuring mechanism in M&A transactions.
An earnout is a deferred financing mechanism; a portion of the
purchase price is made contingent on the target company achieving
certain post-closing performance milestones. In the last decade,
the use of earnouts has increased, especially in mid-market
transactions. A 2024 study conducted by SRS Acquiom Inc. found that
one in
