Originally published in the December issue of PLC
magazine.
There may be a sting in the tail
The recent High Court decision in Porton Capital Technology
Funds and others v 3M UK Holdings Limited and another shows
that agreeing to an earn-out as part of the purchase price for a
business does not always produce the desired result ([2011] EWHC
2895 (Comm)) (see box "What is an earnout"). Expectations
on both sides may often be far too high.
The case also illustrates the dangers of relying on the common
contractual compromise of "consent not to be unreasonably
withheld".
What is an earn-out?
An earn-out is a means of ensuring that buyers do not overpay
for (and sellers do not undersell) businesses that may be diffi
cult to value upfront. Part of the purchase price is paid on
completion of the acquisition, with the balance dependant on the
future performance of the target business. |
