Earn-outs as Consideration The Implied Duty of Good Faith and Fair Dealing & The Obligation of Commercially Reasonable Efforts

One of the more popular mechanisms to bridge valuation differences is the use of an earn-out. An earn-out is a mechanism whereby a portion of the purchase price is contingent and calculated based on the performance of the acquired business over a specified time period following closing. Earn-outs are intended to bridge a valuation gap between an optimistic seller and a skeptical, or cash-strapped, buyer.