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GLOSSARY

Earn Out definition

Copyright © 2025 LexisNexis

/əːn/ /aʊt/

Published by a LexisNexis Corporate expert

What does Earn Out mean?

An arrangement whereby part of the consideration on a share or asset sale is calculated (after completion) by reference to the target company's profits and performance for a specified period following completion.

A proportion of the consideration would typically be paid on completion with the balance paid post-completion.

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Seller's SPA drafting guide (unconditional completion)—checklist

Seller's SPA drafting guide (unconditional completion)—checklist This Checklist serves as a guide of certain key matters for the seller’s solicitors to consider when drafting, or commenting on, a share purchase agreement (also known as SPA or share sale agreement) recording the sale and purchase of the entire issued share capital of a private limited company, where the transaction involves simultaneous exchange and completion. Parties The drafter should: • check to see if the legal and beneficial title to the sale shares is split, ie check to see if the seller's sale shares are held in the name of a nominee, requiring the beneficial owner to: ◦ be named as the seller in the SPA instead of the registered holder, and ◦ procure the sale of the sale shares to the buyer • check to see if the transaction involves any parties connected with company directors, which may constitute substantial property transactions requiring certain approvals (see Practice Note: Substantial property transactions—requirement to obtain members’ approval) • resist proposals to include in...

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Buyer's SPA drafting guide (unconditional completion)—checklist

Buyer's SPA drafting guide (unconditional completion)—checklist This checklist serves as a guide of certain key matters for the buyer’s solicitors to consider when drafting a share purchase agreement (also known as SPA or share sale agreement) recording the sale and purchase of the entire issued share capital of a private limited company, where the transaction involves simultaneous exchange and completion. Parties The drafter should: • check to see if the legal and beneficial title to the sale shares is split, ie check to see if the seller's sale shares are held in the name of a nominee, requiring the beneficial owner to: ◦ be named as the seller in the SPA instead of the registered holder, and ◦ procure the sale of the sale shares to the buyer • check to see if the transaction involves any parties connected with company directors, which may constitute substantial property transactions requiring certain approvals (see Practice Note: Substantial property transactions—requirement to obtain members’ approval) • check to see if the seller's obligations under...

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Heads of terms—share and asset purchases

Heads of terms—share and asset purchases Heads of terms (also known as an offer letter, term sheet, letter of intent or memorandum of understanding) set out, in a short document, a broad outline of the parties' expectations, understanding and agreement of the key terms of the proposed transaction which they have agreed in principle. Where used, heads will be signed at the beginning of the transaction as soon as the parties agree key terms and before the buyer incurs costs in conducting its due diligence and negotiating the transaction documents. Whilst the heads will not compel the parties to conclude the transaction on the stated terms, or even at all, they are intended to establish, in principle, the main commercial terms of a deal. There is no standard format for heads of terms and they can either take the form of a letter (as is common) or an agreement. Either party can prepare the heads of terms, although it is common for the buyer to prepare the...

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Private equity investment—exits

Private equity investment—exits The key attraction of private equity investment for investors and fellow shareholders (including management) is the potential for realising a significant capital gain upon exit of the investment. Whilst receiving income in the form of dividends on shares, interest on loan notes and fees (in various forms) during the life of the investment is important for the investor, the real measure of success of an investment is capital return. It is this which, over time, ultimately determines the success or otherwise of the venture capital or private equity firm and its ability to attract future investment in future funds. For further information, see Practice Note: Private equity investment—firms and funds. Managing the exit The exit is managed almost from the beginning of the private equity investment process. Consideration of the likelihood of a successful exit is very much a part of the investment decision-making process for the private equity investor. Without a successful exit, the investment in all likelihood will be considered a failure....

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Ireland—Heads of terms—private M&A—share purchase—cross-border

Ireland—Heads of terms—private M&A—share purchase—cross-border Strictly private and confidential To: [Insert seller name] [Insert potential seller address] (the Seller) FAO: [insert name of relevant contact at the seller] Date: [insert date] Subject to contract Heads of terms (also known as a letter of intent, offer letter, term sheet or memorandum of understanding) set out, in a short document, a broad outline of the parties' expectations, understanding and agreement of the key terms of the proposed transaction which they have agreed in principle. Where used, heads will be signed at the beginning of the transaction as soon as the parties agree key terms and before the buyer incurs costs in conducting its due diligence and negotiating the transaction documents. While the heads will not compel the parties to conclude the transaction on the stated terms, or even at all, they are intended to establish, in principle, the main commercial terms of a deal. There is no standard format for heads of terms and they can either take the form of...

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Heads of terms—private M&A—asset purchase

Heads of terms—private M&A—asset purchase Strictly private and confidential To: [Insert potential seller name] [Insert potential seller address] (the Seller) FAO: [Insert name of relevant contact at the potential seller] Date: [insert date] SUBJECT TO CONTRACT Dear [Insert name of relevant contact at the potential seller], Proposed acquisition of the business of [insert description of the business to be acquired] (the Business) and assets (the Assets) of [insert potential seller name] (the Seller) 1 Introduction 1.1 Further to our recent discussions, this letter sets out the principal terms and conditions upon and subject to which we, [insert buyer name] or a member of our group of companies (the Buyer), propose to acquire the Business and the Assets from the Seller (the Proposed Acquisition). Each of the Seller and the Buyer is a party and together they are the parties. 1.2 The terms in this letter are not exhaustive and[, with the exception of paragraphs 8.3, 9, 10,...

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