Earnout

Earnouts are a valuation-bridging mechanism used in SPAC mergers when the buyer and seller disagree on the target's worth. Rather than paying the full agreed equity value upfront, a portion is structured as contingent shares that vest only if the post-merger stock price hits pre-defined hurdles — typically measured over 1 to 5 years.

A typical earnout structure might include three tranches: 5 million shares vest if the stock trades above $12.50 for 20 of any 30 consecutive trading days, another 5 million at $15.00, and a final 5 million at $17.50. If the hurdles aren't met within the sunset period, the earnout shares are forfeited.

Earnouts serve multiple purposes. For the SPAC sponsor, they reduce the upfront dilution of the deal. For the target's shareholders, they provide upside participation if the company performs well. For public investors, they signal that the target's management has confidence in post-merger growth.

However, earnouts also create complexity. The contingent shares are a dilution overhang on the stock price. Accounting treatment under ASC 815 or ASC 480 can introduce earnings volatility as earnout liabilities are marked to market quarterly. And the stock-price triggers can create unusual trading dynamics as the price approaches a hurdle.

SpacDesk tracks every disclosed earnout tranche — beneficiary, share count, trigger type (stock price, revenue, or hybrid), hurdle amount, observation window, and sunset date — with citations to the source S-4 or DEFM14A filing.