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What's upfront about a backloaded earnout? You model it as a fixed %, variable cost and run revenue sensitivities. It either meets your investment criteria or
by caminante 1y ago
What's upfront about a backloaded earnout?
You model it as a fixed %, variable cost and run revenue sensitivities. It either meets your investment criteria or doesn't.
- mschild 1y agoI'd imagine the opportunity cost and man power. Even though McKinsey should do the work they will need access to people and information to accomplish it.
- caminante 1y agoParent said McK's fee is 100% contingent. If the company doesn't have the resources available to execute something they've validated, then that's a funding issue that can be solved. Either way, McK's structure doesn't make it "hard for a company to manage." The investment committee approves or rejects.
- flumpcakes 1y agoPerhaps their advice needs expenditure up front - for example if they suggested using blue photocopiers and you only have pink ones. You would have to spend the money on blue photocopiers before you see the return, and before they see their services fee paid?
- caminante 1y agoPer the parent's update, they're overthinking things like how earnouts or how capital budgeting cycles work. e.g., complaining about having to provision an FTE to manage the earnout doesn't make sense because that should be in the business plan considered for approval. You'd only approve if your NPV is positive, including the FTE overhead.