An earn-out is a particular way of structuring the consideration payable for the Acquisition of Shares in a company where at least part of the price is to be calculated by reference to the target company's performance over a period of time following the acquisition. In transactions involving an earn-out, the purchase price given by the buyer for the company's shares will typically include:

1. •

   an agreed amount of initial consideration payable upon completion, and

2. •

   an unascertainable amount of earn-out consideration payable over, or at the end of, the earn-out period

The initial consideration and the earn-out consideration may be payable wholly in cash, in shares or loan notes issued by the buyer (or a connected company) or in any combination thereof.

The earn-out element is often calculated by reference to the target company's profits over a specified period, such as the next two or three accounting periods following completion of the sale. It is also possible, but less usual, to link the earn-out to turnover, net assets or some other financial measure