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Eric Geringswald Posted on : Insider Community

Texas business attorney Byron Egan examines the use of earnouts in M&As

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Texas business attorney and CSC Author Byron Egan will explore the advantages and disadvantages of using earnouts in M&A transactions during a session of the upcoming “Choice, Governance & Acquisition of Entities” webcast offered by TexasBarCLE and the Business Law Section of the State Bar of Texas on May 22.

“An earnout is a deal mechanism in an M&A Transaction which sets forth the criteria upon which the buyer will pay additional consideration to the seller upon the occurrence of specific post-closing events,” Mr. Egan explains in “Earnouts in M&A Transactions,” a paper he prepared for the event.

“An earnout is particularly useful when the buyer and seller have differing views on the value of the estimated future performance of the business or the likelihood that a specific event will occur in the future related to the acquired business.

While earnouts are a deal mechanism used to address disagreements which arise during the negotiation of the purchase price, earnouts commonly result in post-closing disputes over the calculation of the earnout or the earnout itself. These disputes often lead to litigation, arbitration or mediation. To reduce the risks these kinds of issues, it is critical that the buyer and seller bargain for and agree to specific and deal-contextualized provisions and procedures relating to the calculation of the earnout, the parties’ respective earnout-related obligations, and the mechanism to dispute the calculation of each party’s earnout-related obligation.”

Mr. Egan is a partner of Jackson Walker L.L.P. in Dallas engaged in a corporate, partnership, securities, mergers and acquisitions (“M&A”) and financing practice. He has extensive experience in business entity formation and governance matters, M&A and financing transactions in a wide variety of industries including energy, financial and technology. In addition to handling transactions, he advises boards of directors and their audit, compensation and special committees with respect to fiduciary duty and other corporate governance issues, the Sarbanes-Oxley Act, special investigation and other issues.

He is the author of the CSCPublishing treatise EGAN ON ENTITIES: Corporations, Partnerships and Limited Liability Companies in Texas, which addresses the formation, governance and sale of business entities, including an analysis of the fiduciary duties of their governing persons in a variety of situations. He is also the legal advisor for CSCPublishing’s Texas Laws Governing Business Entities Annotated.

The one-day CLE webcast comprises nine sessions that will provide updates on Texas and Delaware business entity statute and case law developments, the state tax law landscape, joint ventures and co-ownership agreements, acquisitions and dispositions of business entities after the Tax Reform Act, ethical considerations, disclosures by closely held businesses, drafting LLC agreements, information rights, and earnouts. To register for the course, which offers 7.25 hours MCLE credit (including 2.75 hours ethics credit), visit TexasBarCLE.com.