In a merger or acqusition, an earnout entitles the shareholders of the target company to receive additional compensation if the target company achieves certain financial goals (e.g., hitting a sales or profit target) in the future. Thus, an earnout is a contractual provision that provides for a contingent payout.
Earnouts are helpful when the buyer and seller disagree about the value of the target company. Disney, for example, offered $350 million upfront when it acquired the company Club Penguin in 2007; Disney offered to pay an additional $350 million if Club Penguin reached certain earnings targets in 2008 and 2009 (this was the earnout). This example is from Disney's 2009 10-K, which can be accessed here: [ Ссылка ]
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