Show Notes
Can an earnout really bridge a valuation gap when rates keep moving? The position here is that most earnouts are a disagreement both sides agreed to postpone, and the discount rate is where the two views collide. A 10 million payout three years out was worth about 9 million at a 3% discount in 2021, and roughly 7.5 million at 8 to 9% today, with no change to the target.
You come away knowing how contingent consideration sits as a balance sheet liability, why quarterly remeasurement pushes gains and losses through earnings, and the three conditions for a workable earnout: an ungameable metric like gross profit, a window of two years maximum, and discount treatment fixed in the contract. Examples include pharma contingent value rights, the AbbVie Cerevel deal, and Microsoft's preference for short binary triggers.
0:00 Why most earnouts hide a disagreement 0:39 The discount rate problem in contingent consideration 1:55 Pharma CVRs and quarterly remeasurement swings 2:58 Three conditions where earnouts actually work 3:31 Fixed nominal payouts and short windows 4:14 Monday morning check on open earnouts
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