M&A DISPUTES AND LITIGATION
CD: Could you provide an overview of the key trends and developments surrounding M&A disputes in recent months? How would you characterise activity levels?
Baldwin: In early 2020, we saw the M&A market grind to a halt as companies went into shutdown mode due to coronavirus (COVID-19). For those deals that had signed, but not yet closed, there was a flurry of activity, both in and outside court, to determine whether the underlying purchase agreement gave the buyer the ability to walk away from the deal. These disputes related, in large part, to whether the seller had violated either the ‘material adverse effect’ (MAE) clause or the ‘ordinary course of business’ covenant typically contained in purchase agreements. Some of these disputes were litigated. In other instances, just the threat of protracted and expensive litigation gave the buyer the ability to reprice the deal. In the last few months, as the economy has started to reopen, these disputes have started to trail off.
Hill: Claims are increasing and are typically larger in value, with the matters complained of often being central to the value proposition. In other words, grounds for dispute often go to the heart of the acquisition rationale, to the point where buyers say they would not have made the acquisition at all had they known what they only discovered post-deal. I hear anecdotally that, in the US, some acquisitive organisations routinely invest in a bespoke team to investigate opportunities for recovery from post completion price true-ups or breach of warranty, which is driving major international disputes. There appears to be an increasingly contentious approach generally to resolving big value disputes. Greater deal values on average seem to have led to claimed losses that are very significant, often exceeding any insurance cover in place.
Oct-Dec 2021 issue
Brown Rudnick
Cleary Gottlieb Steen & Hamilton LLP
Grant Thornton UK LLP
WilmerHale