Ongoing fallout: when M&A turns into years of disputes
Speakers
- Stephen Moi (Partner, Litigation & Regulatory Enforcement, Mayer Brown)
- Mat Kostuch (Senior Legal Counsel, Corporate, M&A and Investments, Vinted)
The top themes we explored in this session were…
- The prevalence of post M&A disputes appears to be cyclical, perhaps in accordance with the deal environment. It has generally been observed that there has been an increase in post M&A disputes in the past 2 or 3 years.
- The most common triggers of post M&A disputes appear to be:
- Breach of warranty (including claims under W&I insurance policies)
- Breach of restrictive covenants
- Post completion adjustments to the purchase price: (1) completion accounts procedure, (2) locked box mechanism (whether a Leakage was a Permitted Leakage), (3) earn-outs / other deferred consideration structures
3. Many disputes can be avoided by clearer and less ambiguous contractual drafting. The drafter should focus on the ordinary, natural meaning of the words actually used, with their literal meaning as a starting point, within the broader commercial context.
These are the top 3 things that attendees should take away from the session:
- Recent trends show M&A transactions are being more intensely negotiated, and increasing in complexity, so be prepared.
- Whether on the buy or sell side, consider implementing a W&I insurance policy to mitigate the risks associated with breach of warranty (or indemnity) claims.
- The governing law and dispute resolution clauses in M&A transaction documents should ideally all align, to avoid procedural complexities in the event that a dispute that does arise. Arbitration may not be well suited to multi-party, multi-contract transactions, because each arbitration agreement in each transaction document is technically separate, meaning that each arbitration will be separate and binding only on the parties to the arbitration. Consequently, the risk is of parallel proceedings and inconsistent findings and arbitral awards, and of obtaining awards that are unenforceable against non-parties.