Where there is a significant portion of transaction value in the earnout or a balance of payment, Covid-19 presents additional challenges to negotiating the operating covenants and subordination provisions. Both sides will be reluctant to restrict their controls over the business, each looking to maintain their rights to either not pay or be paid if the performance thresholds are hit or missed. Where the buyers have sought to subordinate the seller’s earnouts to their senior debt, we must be vigilant that the senior debt covenants remain reasonable targets and sellers can have an expectation to receive their earnouts.
Looking to buy or sell a business? Feel free to reach Allison Dent at info@adcorporatefinance.com
