News and developments
Post-deal dissonance: Factors giving rise to disputes
This produced one of the busiest periods of M&A activity in recent times. But those times have cooled – the economy is contracting, inflation and debt levels remain relatively high, and despite a recent uptick in business confidence, geopolitical uncertainty combines with domestic political change both here and overseas, to create an air of economic uncertainty abroad and at home.
As a result, some of the deals completed over the past two years aren’t looking as good as they might have, through that lens of optimism and excitement occasioned by the end of COVID-19 restrictions.
- Increased scruntiny of deals
- The importance of due diligence
- Use of warranties and adjustment mechanisms
- Keep your eyes open
- The importance of insurance
- The rise of post-deal litigation
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- A continued increase in warranty and indemnity claims – this could include claims for breach of contract, relating to financial and operational performance, compliance with laws and regulations (where organisational misconduct is identified post-deal) and (depending on the entity) significant employee claims (we continue to see significant risk around Holidays Act 2003 compliance).
- Disputes over adjustment mechanisms – purchasers are pouring over price adjustment mechanisms, wash-ups and earn outs that are intended to correct the price between signing and completion of the transaction. Given current and expected economic volatility, both purchasers and vendors may seek to rely on provisions designed to capture non-recurring or abnormal items for a range of items which were, in fact, expected or entirely ordinary in the context of the business. We have already seen several disputes of this nature arising due to COVID- 19’s effects on profit and whether this produced a non-recurring or abnormal effect.