A comfort letter is a document issued by an independent auditor in a preliminary prospectus stating that while a full audit has not been conducted, an audit of just the target company's financial statements did not reveal any adverse change in operations or financial results.
An earnout is a financing arrangement for the purchase of a business in which the seller finances a portion of the purchase price, and payment of this amount is contingent on achieving a predetermined level of future earnings. An earnout is often used to bridge a valuation gap. The seller only gets paid if the predetermined level of future EBITDA or other financial targets are achieved.
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