The challenge
Following the sale of a company, disputes between buyers and sellers regarding the calculation of working capital adjustments, financial resources (cash), financial debt and payments due under earn-out clauses are becoming increasingly common. Breaches of covenants and guarantees, in particular balance sheet guarantees, are asserted or claims are made for fraudulent misrepresentation or fraud.
Purchase agreements usually set out procedures for settling various types of disputes. One option is for the parties to have claims arising from breaches of covenants and guarantees resolved in court or through arbitration proceedings in which legal experts are appointed to deal with the matter.
Alternatively, purchase agreements can also provide for neutral accounting experts to be appointed as arbitrators (neutral experts) for disputes over accounting issues such as working capital, cash, financial debt or other financial measures such as adjusted EBITDA.
Christin Müller
Partner, Deal Advisory
KPMG AG Wirtschaftsprüfungsgesellschaft
Dispute resolution mechanism (arbitration proceedings) in the purchase agreement
The dispute resolution mechanism of the arbitration procedure in the purchase agreement, which is predominantly used in practice, provides for one party to prepare a balance sheet as at the transfer date and make an initial purchase price adjustment calculation. The other party can review this information and either agree with the calculation or object to specific points. In the event of an objection, the parties usually try to reach an agreement as part of a negotiated settlement. If this is not successful, an arbitrator is appointed to make a final and binding decision.
Although subsequent purchase price negotiations are becoming increasingly common, there are only a few specialised experts in the fields of law, auditing and consulting. Buyers or sellers should therefore consider the experience of potential advisors in purchase price negotiations. Expertise in relevant accounting issues and the sector of the transaction object should also be examined.
Each party should be aware of their role in the process and consider how the other party might react to their actions. Important deadlines and information obligations in the purchase agreement should be observed. Experienced advisors can help to understand and fulfil the rights and obligations at each step of the process.
Our Solution
We offer our clients advice and support in purchase price disputes, for example in the context of arbitration proceedings or arbitration tribunals. Our team consists of experienced experts in negotiating purchase agreements, due diligence, forensic accounting and M&A dispute resolution. This combination enables us to bring a broad range of experience to all aspects of the transaction process, including
- Structuring over one hundred SPAs per year
- Supporting numerous clients throughout the entire transaction process from signing to purchase price determination after closing
- Assisting in the resolution of complex transactions and purchase price disputes for a wide range of clients.
Our Services
Our comprehensive M&A dispute resolution and purchase price adjustment services offer you professional support on a wide range of issues and challenges:
We assist you in the preparation of the completion accounts to identify potential points of contention with respect to balance sheet items and help you prepare the completion accounts in accordance with the terms of the purchase agreement. In addition, we identify potential adjustments that could affect the purchase price.
We support you in identifying balance sheet items that have not been recognised in accordance with the provisions of the purchase agreement (disputed items) and help you to prepare an objection/dispute notice.
If you receive an Objection or Dispute Notice from the other party after the Completion Accounts have been prepared, we will assist you with professional analysis, strategy and clarification.
Our experts support you in negotiating with the other party to resolve disputed points and reach a fair settlement. To this end, we use our many years of experience from a finance perspective to assess the strength of your position and support you in determining a likely range for an agreement. This enables us to achieve a fair and satisfactory outcome and speed up the resolution of disputes, saving you time and money.
If settlement negotiations have been unsuccessful, we will help you find alternatives and guide you through further steps, such as engaging an arbitrator and arbitration proceedings.
If there is an arbitrator clause in the purchase agreement, we will advise you on the selection of an independent arbitrator and support you in organising and conducting the entire procedure. We use our experience to support you in the oral and written presentation of your arguments in independent arbitration proceedings. If we have not acted as party counsellor in the run-up to the transaction, we will also assume the role of arbitrator.
We advise on the settlement of M&A disputes and in the context of national and international arbitration proceedings following corporate transactions as well as on the assertion of claims under W&I insurance policies and act as expert accounting witnesses.
Our expertise in accounting disputes for the best possible results
Our team has many years of experience in national and international accounting disputes, in providing information and as witnesses in legal disputes and arbitration proceedings. Our clients benefit from our expertise in providing credible, well-founded and objective expert opinions and statements on disputed accounting issues. This helps them and their (legal) advisors to achieve the best possible outcome in the assertion or defence of claims and in settlement negotiations.
