In the world of business mergers and acquisitions (M&A), post-transaction disputes can arise, leading to legal challenges that businesses must navigate. These disputes often stem from disagreements or issues that emerge after the completion of a merger or acquisition deal.
Below are common types of post-transaction disputes that might require further litigation after the M&A is complete.
1. Earn-out disagreements
One common post-transaction dispute involves earn-out agreements, which are provisions in M&A deals where the seller receives additional payments based on the performance of the acquired business after the transaction. Disagreements may arise if there are differing interpretations of the earn-out metrics or if there are disputes over financial reporting accuracy.
2. Representations and warranty breaches
Another type of post-transaction dispute centers around breaches of representations and warranties. These are statements made by the parties during the M&A negotiations regarding the business’ condition, assets, liabilities or other relevant factors. If the buyer discovers that these statements are inaccurate or misleading post-transaction, it can lead to conflicts and potential litigation.
3. Valuation disputes
Valuation disputes occur when there are disagreements regarding the valuation of the acquired business, particularly if the performance or financial health of the business deviates significantly from what was expected at the time of the deal. These disputes often involve complex financial analyses and may require professional opinions to resolve.
4. Shareholder disagreements
When shareholders of the acquired business are involved, additional disputes can happen after the transaction. These disagreements might be about management decisions, strategic direction or financial results.
By understanding the common types of post-transaction disputes, businesses involved in M&A transactions can mitigate risks and ensure smoother transitions and integration processes.