DEALBREAKERS – MANAGING M&A RISKS AND DISPUTES
M&A disputes can emerge for myriad reasons, including the sale process, the acquisition structure and the governing law of the agreement, for example. Market volatility can also cause disputes. Valuation dynamics can fluctuate between agreeing to a deal and closing months later. As a result, material adverse change and material adverse effect clauses may be triggered, leading to claims. Post-closing disputes often centre on areas such as working capital, representations and warranties, and earn outs.
Such disputes can be costly, eating up time and resources and distracting from the pursuit of value which brought buyer and seller together in the first place.
M&A activity and rebound
2023 was a down year for M&A activity. Total aggregate deal value dropped 15 percent to $3.2 trillion, the lowest level in a decade, according to Bain & Company. With buyers and sellers struggling to close the gap on valuations, strategic M&A declined 6 percent. Strategic deal multiples were the lowest in a decade as macroeconomic uncertainty continued to impact activity.
2024, by contrast, is expected to see something of a rebound. Corporate balance sheets are strong, financing markets are improving and chief executive confidence is growing once more. Meanwhile, shareholder activist campaigns are expected to push for divestitures and other M&A strategies, which will drive activity toward growth, profitability, earnings and increased market share. Cross-border M&A activity could pick up, with many US companies and private equity funds focusing their sights on Canada, the UK and Europe.
Jul-Sep 2024 issue
Richard Summerfield