M&A Transaction Disputes and How to Handle Them

There are few events in the life of a business more replete with feelings of upheaval and uncertainty than a merger or acquisition. If you’re part of the company that is acquiring another in an M&A transaction, then you must contend with the difficulties of integrating two entire teams together into one cohesive unit. And if you’re part of the company that is being acquired, being brought into the fold of a new company can easily create suspicion and distrust as to whether your team might be treated as welcome newcomers, or unwelcome usurpers. 

Mergers and acquisitions can often be the product of a stressful and untenable business climate and it is imperative that both sides understand their place in the new company and how disagreements or disputes will be handled fairly for all. Our Managing Partner Paul Skeith goes into more detail below. 

Setting Expectations and Defining Boundaries

This week I’m sharing some tips and thoughts about how to effectively handle disputes that arise after the sale of a business. Disputes are likely inevitable in any M&A transaction, especially when there are differences in expectations, interests, or interpretations between the parties involved. Disputes can involve different parties such as sellers, buyers, shareholders, lenders, regulators or third parties. Unfortunately, every day is rife with opportunities for misunderstandings or disagreements if the parameters of these new business relationships have not been clearly defined. 
 
Some of the most common causes of disputes that I’ve seen in my practice are breach of the purchase agreement, representations and warranties by the buyer or seller, third-party claims against the seller, earn-out or contingent payment disputes, purchase price adjustment disputes, working capital adjustments, tax liabilities and splitting the tax liabilities, intellectual property rights, lurking employment or labor issues, and regulatory compliance issues. As you can see, there are so many moving pieces when it comes to merging with, acquiring, or being acquired by another business. So many things can go wrong, and it is imperative that the framework and operation of the combined business be carefully and thoroughly defined. 

Putting Out Fires Before They Start

To prevent or minimize disputes that may arise, it’s important to have a clear and comprehensive deal agreement that covers all the material terms and the conditions of the transaction. It is also crucial that a dispute resolution mechanism is included that specifies how possible future disputes will be handled. It is important to conduct a thorough due diligence process to verify the accuracy and completeness of the information provided by the other party. Just because you’re acting in good faith doesn’t necessarily mean that the other side is, too. You want to make sure there are no surprises and identify any potential red flags or deal-breakers up front. 
 
I also suggest that it’s important to maintain a good relationship with the other party throughout the entire deal process and to communicate honestly about any concerns or issues that may arise after the deal closing. If a dispute does occur, it’s best to act quickly and proactively to resolve it before it escalates or affects the value or performance of the deal. You can use various methods to resolve disputes, such as negotiation, mediation, arbitration, or – if all other options fail – litigation. Realistically, it’s almost a guarantee that some level of disagreement will occur during these stressful times. What’s important is that both sides do their part to handle it fairly, rationally, and openly.

Have an M&A Plan

In conclusion, post-M&A closing disputes are likely inevitable, but through careful planning these disputes can be managed and dealt with efficiently, in a way that gives all the parties the deal that they originally bargained for. At Richards Rodriguez & Skeith, our business & transaction law attorneys have decades of combined experience handling delicate situations such as M&A. If you’re in the process of handling an M&A transaction – or will be part of one in the near future – RRS may be able to help! Contact us today to find out how!