Brief Definition
Contingent consideration refers to a payment arrangement in a business acquisition where the buyer agrees to pay additional amounts to the seller if certain future conditions or performance targets are met.
Further Explanation
Contingent consideration refers to a payment arrangement in a business acquisition where the buyer agrees to pay additional amounts to the seller if certain future conditions or performance targets are met. This type of consideration is often used in mergers and acquisitions (M&A) to bridge valuation gaps between the buyer and seller by linking part of the purchase price to the future performance of the acquired business.
Example:
Company A acquires Company B for an initial payment of $50 million, plus an additional $10 million if Company B achieves $100 million in revenue within the next two years. The $10 million is the contingent consideration, payable only if the specified revenue target is met.