Deferred consideration and earn-outs are commonplace in today’s M&A market, helping bridge valuation gaps and smooth cash demands on buyers (see also our previous articles in April 2017 and June 2018). But when the day comes to make the deferred or earn-out payment, no buyer wants to pay further purchase price if a warranty or indemnity claim is pending against the sellers.
Set-off rights provide the answer, but are not as simple as many may think. In this article we flag five factors to consider when adding a set-off clause into your sale and purchase agreement.
1. Why bother?
Those in the know will point out that English law already provides set-off rights, and ask why extra drafting is required.
MJ Hudson works with clients in the fields of law, international administration, fund management, investment advisory, and IR and marketing, across both alternative and traditional asset classes.Gresham House Strategic PLC (LON:GHS) has a 1.3% ownership of MJ Hudson as of June 2018.
