The secondary market has not been immune to the effects of the economic crisis caused by the coronavirus pandemic. The result has been a high degree of market uncertainty, but with the prospect that deal activity may resume in the second half of 2020 once valuations from the second fiscal quarter of the year are available and the full impact of the current crisis can be properly assessed. Nonetheless, deal structures have evolved to date – and will likely continue changing – as the secondary market adapts to the post-coronavirus world. Until the market finds stable footing, earn-outs may become more widely used to facilitate secondary transactions amidst otherwise uncertain asset valuations. In a guest article, Proskauer attorneys Bruno Bertrand‑Delfau and Jordan Hurwitz outline the key legal and commercial considerations involved in negotiating earn-outs. Building on some of the lessons from how earn-outs were used in the 2008 global financial crisis, this article covers topics such as what to include in earn-out calculations, how to perform those calculations and what restrictions are necessary in conjunction with the mechanism. For more on the secondary market, see “A Practical Guide to the Mechanics of a Secondary Transaction and Attendant Considerations
” (Mar. 3, 2020); and “Current Trends in the PE Secondary Market and Key Differences Between Europe and the U.S.
” (Oct. 22, 2019).