Post-closing disputes: Key issues and how to avoid them

May 20, 2019
Mergers & acquisition Private equity Financial consulting

Business acquisitions and dispositions are complex transactions with increased potential for disagreements, as well as subsequent costly and contentious litigation. Post-closing or post-acquisition disputes often delay or completely derail transactions initially viewed as beneficial for both parties. However, understanding common issues and planning for them up front helps to avoid disputes that can diminish the benefits of a deal.

Post-closing disputes are often expensive and frustrating, negating much of the considerable time, effort and resources spent identifying and negotiating a transaction. They can also create significant and negative economic impact (increased costs, strained relationships, judicial intervention, etc.) for both parties.

Two common areas that lead to disputes are working capital and earn-out provisions. In both cases, disputes can originate from several different areas, including:

  • Ambiguity of terms or contract language
  • Lack of definitions
  • Potential manipulation by one party
  • Disagreement over data sources
  • Calculation methodology     

To help avoid disputes and retain the value of the deal for both parties, you must ensure terminology is clear and well-defined, illustrative examples are included, and incomplete, inconsistent or bad data is eliminated. Implementing a strategy with these areas in mind assists in reducing the occurrence, or at least lessening the impact, of post-closing working capital and earn-out disputes.