ARBITRATING POST-M&A DISPUTES
M&A transactions are complex, time-consuming endeavours which pose myriad risks to both buyers and sellers. Considering the nuances and challenges associated with dealmaking, particularly in the current volatile climate, it is unsurprising that disputes can emerge after a deal is closed.
According to a report from Berkeley Research Group, disputes between buyers and sellers are increasing globally, driven by factors such as changing economic conditions which may motivate acquirers to revisit deal valuations. Other drivers include the use of new deal structures, the involvement of special purpose acquisition companies (SPACs), and the increased activity of private equity (PE) firms.
The escalation in disputes also stems from the strength of the M&A market since mid-2020, which has seen rising deal volumes. But in the first year of the crisis, disruption and uncertainty derailed many deals. There was also an initial surge in post-M&A arbitration, with buyers looking for ways to exit or renegotiate deals. These trends were reminiscent of the 2008 credit crunch, where in the UK disputes that reached the High Court relating to sale of a business or stakes in a business, rose 543 percent in a single year, from 42 in 2008 to 270 in 2009. A similar jump may occur when the dust settles in the post-pandemic landscape.
Such disputes can be damaging financially and reputationally for the parties involved. Accordingly, parties should give mind to dispute resolution from the outset of deal negotiations. Steps should be taken to structure effective provisions in the acquisition agreement.
Oct-Dec 2022 issue
Richard Summerfield