This case was designed to serve as a basis for discussion of the use of the student conventional forms of payment in M & A. The main character in the case of a buyer, and the conditions necessary to develop a conditional payment ("earnout"), which will protect the buyer if the rosy future is not going to happen until compensate the seller if it does. Students are given complete discounted cash flow (DCF) evaluation of the target (Digitech) under both the seller and buyer forecasts, which reveal a wide gap in the assessment. The main character is trying to bridge that gap through a combination of fixed and contingent payments to the seller. Two different designs earnout offered in the case. Students should mimic earnout estimate the expected value of this provision from the point of view of him as a buyer and seller.
This Darden study. "Hide
by Scott Sigler Source: Darden School of Business 13 pages. Publication Date: September 30, 1999. Prod. #: UV0087-PDF-ENG
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