As M&A Rises, Dealmakers Grapple With Earnout Risks and Rewards

Olshan litigation counsel Anthony Boccamazzo authored an article in Bloomberg Law entitled “As M&A Rises, Dealmakers Grapple With Earnout Risks and Rewards.” In the article, Tony highlights the growing complexities surrounding earnout provisions in M&A transactions as deal activity heats up. The article explores how dealmakers are navigating the delicate balance between mitigating risks and maximizing rewards in earnout structures, addressing key considerations for both buyers and sellers in today’s dynamic M&A landscape. Tony’s article also explores how earnout provisions, originally common in life sciences transactions due to unpredictable post-closing variables like regulatory approval and clinical trials, have now become prevalent across all types of M&A deals. “According to a recent report by SRS Acquiom, earnout provisions are currently included in 22% of non-life sciences for M&A transactions,” Tony writes. “Although this figure is down from its 2023 high of 33%, earnout provisions are still included in more than 1 in 5 non-life sciences transactions.” The article points to the high-stakes Fortis v. Johnson & Johnson case, currently before the Delaware Supreme Court, which exemplifies the litigation risks inherent in earnout provisions. The case illustrates the fundamental tension in earnout arrangements: while buyers consider their overall business operations post-closing, sellers focus on maximizing their earnout payments. “The Johnson & Johnson case is simply another reminder that earnout provisions remain an invitation to litigation,” Tony writes.