Looking for earn-out model
I'm looking for an earn-out model, i.e. M&A with purchase price contingent on the target (or combined entity) reaching a specific milestone at a specified date. Free or paid - anyone can help?
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Based on the WSO content, the financial modeling training courses include discussions on earnouts, particularly in the context of M&A scenarios. The courses are designed to help students and investment banking professionals understand complex deal structures, including those involving earnouts. These models often feature flexible toggles based on year, size of acquisition, and model out a representative acquisition target which flows into the model in a waterfall structure. This is treated as an asset acquisition for simplification in the balance sheet impact.
For a more detailed and hands-on approach, you might consider accessing the WSO Free Modeling Series, which includes financial modeling lessons and templates. This resource could provide you with the necessary tools and templates to build or adapt an earn-out model to suit your specific needs.
Sources: NEW Financial Modeling Training Courses, Most Strategically Successful M&A deals of the last few years?, On Buyouts, There Ought to Be a Law, Reasonable entry multiple for buyout target?, Is there a website to find specific M&A deals?
No it's not in the WSO courses tf
Check out the PE deals process course, we cover earnouts there
What's the milestone? Revenue, gross profit, etc.?
Wouldn't you just add it to the sources and uses, link it to the balance sheet, and then if the target is met it gets reduced by the payout with a corresponding cash flow impact on the cash flow statement?
Include in S&U and just add a switch to have it flow out of cash flows if metrics are met.
have you heard about the if formula, i heard its pretty dope
Set a probability on the earnout payment. Then discount the midpoint back to the present using a risk-free rate based on Treasury constant maturity rates, using linear interpolation to correspond to the milestone term. The concluded discount rate for the milestone should be equal to the risk-free rate plus option-adjusted spread to capture the credit risk of the payer (i.e. RF+ BBB or B credit risk).
an earn-out is a binary event, it's not like winning a contract where it makes sense to assign a probability to it and then seeing the aggregate impact of different probabilities on multiple contracts. Better off keeping it simple and just have multiple scenarios
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