Corporate transactions usually involve the parties entering into a sale and purchase agreement (SPA), which sets out the terms and conditions of the transaction. The SPA may include a requirement to prepare a set of completion accounts as at the date of completion. Where the transaction includes earn-out clauses for the owners and/or key employees of the target business, the SPA will also set out the basis for calculating those earn-outs.
Completion accounts are accounts prepared by reference to the assets and
liabilities of the target business at completion. They are a typical requirement of many SPAs. A completion accounts mechanism enables the parties to true-up the price payable by the purchaser based on the actual assets and liabilities acquired at completion.
Earn out clauses
Earn out clauses are popular as they help the parties to bridge the price expectation gap. They can also be used to tie in the owner of the target business for a period of time after completion to assist with the transfer of key customer or supplier relationships. Under the terms of an earnout clause the purchase price is trued-up by reference to the profits achieved by the target business over, say, one to two years after completion.
How we can help
RS Forensic has many years’ experience of completion accounts and earn-out disputes. We frequently see SPAs which are internally inconsistent and/or require the completion accounts to be prepared on a basis which is simply impossible. We use our experience of these situations to advise clients on the financial and commercial terms of their SPAs before they sign.
RS Forensic has experience of assisting clients at various stages of the completion accounts and earn-out process:
- Planning for the process – ensuring the terms of the SPA and its implications are understood and adhered to
- Preparing the completion accounts or earn-out calculations
- Negotiating the position and preparing supporting analysis (including
analysis of the strengths and weaknesses of both parties’ positions)
- Preparing submissions to the independent expert if required
- Acting as independent expert under the terms of SPAs to provide an expert determination on the completion or earn-out accounts
Typically working on transactions involving owner-managed and SME businesses. We are experts in:
Advisor to party in a completion accounts dispute
Expert determination of completion accounts dispute relating to deferral of costs
Expert determination of earn out dispute