This PwC blog offers strategies for avoiding post-closing purchase price disputes in M&A transactions. Specific recommendations include:
Make the closing date work for both parties. Setting the closing date at the end of the month or end of the quarter makes for an easier transition from seller to buyer. By setting the closing date at the month or quarter end, you can help mitigate the monthly cut-off concerns which often lead to disputes.
Dot your i’s and cross your t’s. The more specific the parties can be when drafting the agreement, the lower the likelihood there will be a disagreement over the terms of the contract.
Avoid double trouble. Be careful about having specific inclusions or exclusions for selected accounts such as cash, debt, or income taxes, while at the same time allowing for other adjustments, such as net working capital, that may end up overlapping.
Count your chickens. Buyers naturally want to ensure that all of the assets they are paying for are there when the transaction closes, and that they are valued appropriately. Parties should also agree on procedures that will be used to verify the existence of certain high-value property, plant, and equipment.
Decide who sees what. Parties should ensure adequate language is included in the purchase agreement to mitigate the risk of one party not having sufficient access to books, records, and key personnel. Language should be specific regarding the ability to obtain electronic files, such as the general ledger system or other native files.
Decide what is material. If the contract is silent regarding when a dispute is considered material, then anything is fair game.
– John Jenkins