One of the most important factors for a successful M&A transaction is a quick integration of the acquired business into the purchaser’s organisation. However, post-closing disputes between seller and purchaser arise constantly and distract the attention of purchaser’s management from the integration of the acquired business. Such disputes comprise damages claims in connection with guarantees and warranties but frequently relate to completion accounts issues.

Completion accounts issues arise because most share and purchase agreements (SPA) contain purchase price adjustment clauses. Such clauses are based on key ratios like net asset value (i.e., total assets less total liabilities), working capital (i.e., current assets less current liabilities) or on earnings figures (e.g., earnings before interest and taxes). An adjustment of the purchase price is triggered by the deviation of the respective ratios or figures determined on the basis of the completed accounts as per the closing date and the ratios and figures as stipulated in the SPA as per the signing date, unless the changes are below a so-called de-minimis threshold.

Purchase price adjustment clauses are used to account for changes between signing and closing. The purchase price is usually negotiated as per the signing date based on the latest annual financial statements, recent pro-forma statements and on information obtained as a result of due diligence. However, because the transaction is closed a couple of months after signing, the accounts of the acquired business may be impacted in multiple ways leading to a deviation from the accounts anticipated as per the signing date. Therefore, the net asset value, working capital or the respective earnings figure may be higher or lower than agreed to in the SPA.

Jan-Mar 2013 issue

PricewaterhouseCoopers AG