Module V· Consideration Mix & Earn-OutsAdvanced
Question
How do you model an earn-out structure in an A/D model?
Answer
Model the acquisition-date fair value of the earn-out as part of consideration and goodwill. Then forecast expected milestone payments and classify future cash outflows. For EPS, include any remeasurement gains or losses only if you are modeling accounting EPS; for adjusted EPS, usually exclude remeasurement volatility. Also show sensitivity for payout probability and timing.