Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators
The Tax Gross-Up Trap in M&A Earnouts
Lucas and Luna dissect a specific tax trap buried in M&A earnout clauses: the tax gross-up. Using the real-world example of a $50 million earnout in a 2025 software deal, they explain how sellers can lose 20-30% of their payout if the contract doesn't specify that earnout payments are grossed up for the seller's tax liability. Lucas walks through the mechanics — how the buyer deducts the earnout as compensation, shifting the tax burden to the seller — and contrasts it with the treatment of contingent value rights (CVRs) in biotech deals. Luna brings in data from a 2024 study showing…
The skinny
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