ARBITRATING M&A DISPUTES
CD: What do you consider to be among the key developments unfolding in the M&A disputes landscape in recent months?
McDonnell: There are three key themes that we are watching closely. First, there is an increasing use of warranty and indemnity (W&I) insurance policies, which, subject to the specific policy terms, provides an indemnity to a seller for breaches of warranties given in the sale and purchase agreement (SPA). The use of W&I insurance is potentially a benefit to both parties to the SPA, providing the seller with greater clarity by removing a large part of the risk of litigation post-completion, and providing the buyer with a route to recourse against an established insurer in the event of warranty breach. The W&I policies we see are typically subject to arbitration clauses and so they are also suitable for cross-border transactions where enforcement may be a concern for either party. Second, the proliferation of sanctions and export controls, particularly against Russia, and countermeasures has resulted in market participants being more cautious about pursuing deals, particularly where transactions involve state-owned entities, or the target has a presence in territories such as Russia. Third, environmental, social and governance (ESG) matters are far more important in transactions now, both in M&A, but also in venture capital and private equity investment rounds. The greater focus on ESG matters presents more risk to sellers in disputes, particularly if the entity has not been run in a compliant way.
Bivens: As a result of the recent challenges in the M&A market, there has been an increased prevalence of valuation disparities between buyers and sellers. This gap is often closed by earn out provisions, which in any environment can be a source of disputes.
Jan-Mar 2024 issue
Brown Rudnick
CMS Cameron McKenna Nabarro Olswang LLP
Davis Polk & Wardwell LLP
Hogan Lovells