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Bruner, Robert F.,...
Printicomm's Proposed Acquisition of Digitech: Negotiating Price and Form of Payment
Bruner, Robert F.; Stiegler, Scott
F-1264 | Published September 30, 1999 | 13 pages. Case
Collection: Darden School of Business
Product Details
This case was developed to serve as a foundation for student discussion of the use of contingent forms of payment in M&A. The protagonist in the case represents the buyer, and must design terms of contingent payment ("earnout") that will protect the buyer if the rosy future does not occur, yet reward the seller if it does. Students are given completed discounted cash flow (DCF) valuations of the target (Digitech) under both the seller's and buyer's forecasts, which reveal a wide gulf in valuation. The protagonist seeks to bridge this gulf through a combination of fixed and contingent payments to the seller. Two different earnout designs are suggested in the case. Students must simulate the value of the earnout to estimate the expected value of this provision from the standpoints of both the buyer and seller.
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