Earn-Out

Definition

Deferred acquisition payments contingent on the target company hitting future performance metrics, bridging valuation gaps between optimistic sellers and skeptical buyers. It's 'prove it and we'll pay more.'

Example Usage

The acquisition included a $20 million earn-out payable if revenue exceeded $50 million in each of the next three years.

Origin

Became common in M&A practice in the late 20th century

Fun Fact

Earn-outs frequently lead to lawsuits as sellers claim buyers deliberately sabotaged performance to avoid payment, while buyers claim sellers inflated projections—trust is scarce.

Source: Mergers and acquisitions terminology

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tax-free

The mythical unicorn of financial transactions: money that the government has graciously decided not to touch. Income or purchases that escape taxation, usually because lawmakers needed to incentivize something or felt charitable that particular legislative session. The two most beautiful words in accounting, often followed by fine print and eligibility requirements.

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turnover ratio

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subordinated

In finance, debt or claims that get paid last in the hierarchy of bankruptcy proceedings—basically the financial equivalent of standing at the back of the line. Subordinated debt holders only get paid after senior creditors are satisfied, making it riskier but typically offering higher returns. It's the 'you'll get yours if there's anything left' category of obligations.

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vegas

In finance, the Greek letter measuring how much an option's price will swing when market volatility does its thing—basically, it's sensitivity to how much everyone is collectively freaking out. The higher the vega, the more your option's value rides the uncertainty rollercoaster. Named after Las Vegas (sort of), because options trading is basically sanctioned gambling with more math.

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gross

The beautiful, untarnished number before reality sets in—your total earnings before taxes, fees, and other joy-killing deductions take their bite. It's what you earn in theory versus what actually shows up in your bank account (the "net"). Finance departments love talking in gross because it makes everything sound way more impressive.

💰 Finance / Accounting

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degmt

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