Transaction Advisory, Investment Management

September 25, 2018

WHITEPAPER | The Role of Earn-outs in RIA Transactions

Earn-outs are as common to investment management firm transactions as they are misunderstood. 

Despite the relatively high level of financial sophistication among RIA buyers and sellers, and broad knowledge that substantial portions of value transacted depends on rewarding post-closing performance, contingent consideration remains a mystery to many industry participants.Yet understanding earn-outs and the role they play in RIA deals is fundamental to understanding the value of these businesses, as well as how to represent oneself as a buyer or seller in a transaction.

This whitepaper is not offered as transaction advice or a legal primer on contingent consideration.The former is unique to individual needs in particular transactions, and the latter is beyond our expertise as financial advisors to the investment management industry.Instead, we offer this whitepaper to explore the basic economics of contingent consideration and the role it plays in negotiating RIA transactions.

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