A common feature of M&A deals in the Advertising & Marketing sector is the use of earn-outs, which allow buyers to retain and incentivise key seller-managers. Agency seller-managers benefit as they are given the opportunity to “prove” the value of the agency and get paid more for it (a buyer may otherwise discount for risk if asked to pay in full on completion of the agency acquisition).
Earn-outs usually measure and pay out based on the underlying profitability of the agency. Given the economic impact being caused by the Coronavirus, agency sellers may well be facing next to nothing from their earn-outs. We recently published an article that looks at this in more detail, and includes tax risks to watch out for - please click on the link below to read the full article.
And please don't hesitate to get in touch if you would like to discuss any of the points raised.
Earn-out deals are intended to incentivise agency seller-managers but Coronavirus is likely to have a heavy impact on them.