DealLawyers.com Blog

This recent Weil article (p. 6) reviews Northern Data AG v. Riot Platforms, (Del. Ch.; 6/25), a recent Delaware Chancery Court’s decision sorting out various purchase price adjustment disputes, and uses that case to develop a list of best practices to avoid these disputes. This excerpt lays out some of those best practices:

– Process, process and process again. Work closely with accountants and financial advisors at all times throughout purchase agreement negotiation and drafting. Align in advance on process timeline, especially in fast-moving transactions, to permit advisors time to review drafts of the relevant provisions.

– A detailed model of the EV-to-equity bridge is key. Some definitional components of a purchase
price calculation may leave room for interpretation – a detailed model forces deal teams and financial advisors to wrestle with the language in the contract leading to a better process.

– If the parties differ in level of sophistication, consider including a detailed sample calculation marrying each line item to its purchase price definition as an exhibit to the purchase agreement. But be clear about whether the exhibit is binding or included for illustrative purposes only.

The article also recommends paying close attention to how accounting metrics used to calculate and adjust final purchase price are defined and considering a cap on purchase price adjustments – particularly in situations where varying interpretations of accounting concepts could result in significant swings in the amount an adjustment.

– John Jenkins