In an article for Ignites, a Financial Times Specialist publication, White & Case partner Dario de Martino discussed the earnout at the center of Knowledge Leaders Capital’s lawsuit against AXS Investments.
Dario said that while the structure of such deals is common, “the proportions are not.” Outside the life sciences sector, the median earnout is about 31 percent of the closing payment, earned over 24 months. Here, the earnout was the entire purchase price, earned over five years. “The generous-looking 85% share is part of the problem: AXS kept 15 cents of each net fee dollar from this fund and the whole dollar from its own products,” he added.
He also noted that the lawsuit’s success may depend on what prompted the adviser, whose clients held most of the fund, to pull out: “Whoever wins the argument over why that money left wins most of the case.”
Read the full article here.
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