IS 2021 THE YEAR OF MERGER AND ACQUISITION DISPUTES?

Added by Love Business East Midlands | 18 January 2021

UPDATED: 18 January 2021

THE prevalence of merger and acquisition disputes as a result of the coronavirus pandemic is “inevitable” in the year to come, according to an expert dispute resolution solicitor at leading law firm Nelsons https://www.nelsonslaw.co.uk/.

2020 was a year of upheaval and uncertainty and so, as we enter the new year, many business owners may be reflecting on the mergers or acquisitions they completed over the past couple of years. Transactions that may have previously felt like a positive step towards the growth of a business or diversification of income, may now appear to be nothing more than an additional burden on company finances.

Andy Rudkin https://www.nelsonslaw.co.uk/people/andy-rudkin/, partner and solicitor in Nelsons’ dispute resolution team, said: “The financial impact of the pandemic will undoubtedly take hold in 2021, as bank and government funding options reduce or become repayable. Couple that with the continuing obligation in many instances to make deferred payments towards those acquisitions, it’s inevitable we will see a number of business owners considering their options.”

The Covid-19 impact

“Merger and acquisition transactions often involve a detailed and time-consuming process, requiring significant due diligence from a buyer, careful consideration of the seller’s performance and anticipated income over future years, as well as detailed negotiations between the parties to structure and agree deferred payment of the consideration.

“However, in light of the pandemic, we are seeing a rise in cases where the expected and anticipated income has not been met with the performance requirements anticipated at the outset and, as such, an increase in buyers reneging on payment obligations.

“Now, buyers are often taking the view that they’ve overpaid for what they have acquired, while sellers remain adamant that an agreement reached requires fulfilment and are seeking to enforce full payment of any deferred sums.”

Reviewing sale agreements

“As disputes of this nature arise, careful review and interrogation of the original sale agreements are the first port of call. While on the surface an agreement was reached to pay a specified sum of money for the acquisition, there are often performance obligations and/or warranties provided by a seller that might have been breached.

“If the seller did agree to a certain performance obligation following completion, and these commitments have not been met, it’s plausible to dispute the future payment obligations owed. Similarly, where full consideration may have been paid as completion, if the agreed performance obligations have not been met, the seller may be in breach of contract and, therefore, liable for part repayment to the buyer.”

Breach of warranty claims

“During the merger and acquisition process, the seller will often provide documentation in the form of management accounts or anticipated revenue calculations based on stock levels, customer orders and/or profitability calculations from previous years.

“If the seller specifically discloses such information upon the buyer’s request, and the buyer relied upon the due diligence supplied for information or documentation that later transpires to be incorrect, this is where breach of warranty claims can arise.

“This can be as simple as the seller claiming the information supplied is accurate when it is not, or stating they’ve provided full and frank disclosure, when they have not. As with sale agreement breaches, the buyer is entitled to pursue a claim against the seller in these types of scenarios.”

Payment disputes

“It’s not just the buyer who has options open to them but the seller as well. If their obligations have been fulfilled but full payment has not been made, they can seek assistance in collecting overdue sums or negotiating further payment plans that take account of the current economic situation – while giving them certainty of a future payment.”

Resolution

“There are many situations where a perfectly profitable business might not succeed under new management, regardless of economic factors, but that a hive off or de-merger to the original parties may result in a financially suitable resolution being reached to the satisfaction of both parties.

“The uncertainty of the past 12 months has certainly heightened awareness around disputes of this nature in addition to a more careful consideration as to whether the obligations of all parties have been met.

“It’s never been more important to take a step back and consider all aspects of the transaction and documentation, which will be specific and tailored in each case, and to seek legal advice as early as possible.”

For more information on merger and acquisition disputes, please visit: www.nelsonslaw.co.uk/business-disputes http://www.nelsonslaw.co.uk/business-disputes/.

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