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Panacea for M&A dealmaking? Investor perceptions of earnouts

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  • Dahlen, Niklas
  • Lahmann, Alexander
  • Schreiter, Maximilian

Abstract

We survey 129 investors from private equity firms, investment banks, corporate M&A and other M&A-related roles about their perception of earnouts. The results indicate that earnouts are applied to reduce information asymmetries and to bridge negative agreement zones in transactions. While these findings are largely aligned with the academic perspectives, we reveal several discrepancies to existing theory with respect to motives, valuation and associated costs. This is the first study that incorporates the view of M&A professionals and thus attempts to bridge the gap between academics and professionals. In addition, it provides impulses for further academic work on earnouts.

Suggested Citation

  • Dahlen, Niklas & Lahmann, Alexander & Schreiter, Maximilian, 2024. "Panacea for M&A dealmaking? Investor perceptions of earnouts," Finance Research Letters, Elsevier, vol. 60(C).
  • Handle: RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323012229
    DOI: 10.1016/j.frl.2023.104850
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    References listed on IDEAS

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    More about this item

    Keywords

    Earnout; Contingent payments; Contingent claims; Survey; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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