The valuation of a target company and determination of a final purchase price are challenging aspects of any acquisition, and a buyer's ability to defer payment or adjust the purchase price based on financial results is often highly negotiated. The challenge can be even greater in cross-border transactions where parties from different jurisdictions may have different accounting systems, M&A customs, and business practices.

This new practice note by William Ho, Eva Ying, and Dorothy Hung from K&L Gates considers the use of earn-outs in the acquisition of the shares of a private company in Hong Kong, where all or part of the purchase price will be calculated by reference to the future financial performance of the target company. It also summarises key aspects of value protection tools common in private company acquisitions in Hong Kong, namely locked box pricing mechanisms, retention arrangements, and escrow account.