In an acquisition, clawbacks benefit both the buyer and the seller in various ways:

Buyer Benefits

Clawbacks protect buyers by allowing them to end contingent payments for a fixed amount, providing financial security and certainty.

They incentivize sellers to assist in transferring clients and assets smoothly, reducing the risk of losing money due to client attrition.

Clawbacks can be paired with other protections like non-compete clauses, giving buyers legal recourse if the seller obstructs client transfers.

Seller Benefits

For departed equity owners, clawbacks ensure they receive full consideration for their equity interest in a subsequent sale of the business, allowing them to share in the proceeds as if their shares were not previously sold.

Clawbacks enable departed owners to benefit from earlier fixed payments, providing financial stability and participation in future sale proceeds.

These provisions offer departed owners a fair share of the business's value post-sale, addressing concerns about potentially higher sale prices shortly after their exit.

April 19, 2024