Key Takeaways
- Earnouts are crucial in M&A, especially in the life sciences sector, as they bridge the gap between the current value of a company and its potential future value. They allow buyers to pay a lower upfront price while offering sellers additional payments contingent on future success.
- The recent court ruling against J&J for breaching earn-out terms in its merger with Auris Health has significant implications. It highlights the risks for buyers in not fulfilling contractual obligations and raises concerns about trust and future payouts in M&A transactions.
- The J&J-Auris case has prompted discussions on the future of earnouts. Alternatives like build-to-buy models are being considered, which minimize risks for both parties. However, earnouts are expected to remain prevalent, with more stringent and creative structuring to address potential conflicts and ensure fair outcomes.
Closing an M&A transaction is like a dance
But unlike with a conventional dance, they dance to different songs - the purchaser wishes to pay the least while the seller wishes to charge the most
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