White & Case Co-Head of Global M&A, Kimberly Petillo-Décossard, and M&A/PE partner Daniel Kozin spoke with S&P Global about how fund managers are increasingly turning to earnouts to narrow the buyer-seller divide that has been slowing M&A.
Petillo-Décossard noted that earnouts can "delay but rarely resolve buyer-seller disputes over valuations." She tied the prevalence of earnouts in 2025 to global M&A markets' hangover from the buying frenzy in 2020 and 2021, when valuations were high and acquirers were willing to pay up. The 2022 run-up in inflation and interest rates deflated valuations, opening a persistent buyer-seller divide.
Kozin added earnouts in the PE context (outside of the life sciences and pharmaceuticals space) are usually reserved for underperforming assets, given that sponsors prefer a "clean break" with portfolio companies and certainty regarding the value they deliver.
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