How M&A disputes arise
M&A – mergers and acquisitions – are where businesses buy other businesses or agree to merge. Disputes can sometimes arise as part of, or subject to, M&A transactions.
There are two broad types of M&A disputes:
- Disputes in respect of completion accounts or earn-out calculations
- Disputes arising from breach of warranty
Sometimes there are also disputes around indemnities and around misrepresentations, but these arise less often.
Disputes over completion accounts and earn-outs
Disputes can arise where parties cannot agree how completion accounts and earn-outs statements should be prepared following a transaction. This then means the final transaction values cannot be agreed. Invariably these disputes will be resolved through an expert determination, a process where an independent expert is appointed to issue a legally binding determination of the matter(s). Forensic accountants can help throughout: supporting parties during the preparation of the completion accounts or earn-out statements, assisting during negotiations, drafting submissions for the expert determination process, or even acting as the expert determiner
Disputes over breach of warranty
Breach of warranty disputes arise where a purchaser, having acquired a business, finds that a warranty or warranties given by the seller was, in fact, not true. Often these relate to warranties around financial reporting or accounting, or around a failure to properly disclosure important matters. Where there is a breach of warranty, the purchaser is able to claim damages from the seller based on the diminution in value of the business between its value as warranted and its value as it actually was. Forensic accountants can help in two ways: first, providing assistance and expert opinion in relation to liability and the circumstances of the alleged breach of warranty, and second, providing assistance and expert opinion as to the effect of that breach on the value of the business. The latter is one example of a “contentious valuation”.
