TRENDS AND PREDICTIONS FOR M&A DISPUTES
It is no secret that dealmaking was hugely impacted in the first half of 2020 by the onset of the coronavirus (COVID-19) pandemic, followed by a surge later in the year. Given the atypical nature of a year which left us all needing to recalibrate in light of, among other factors, the pandemic, the US election and Brexit, any attempt to extrapolate trends in M&A from 2020 as an indicator of future activity ought rightly to be treated with caution. However, despite the multitude of factors, some trends exhibited in 2020 are consistent with prior years, with others likely to be triggered anew by those very factors.
Areas of dispute
The turbulence of the year has prompted a focus on disputes arising out of M&A deals. Common hunting grounds for disputes are consideration mechanisms such as earn-outs and completion accounts, and the warranties and indemnities (W&I) provided by the parties, both pre- and at completion. The increased prevalence of flexible pricing structures (including deferred consideration) has led to an increase in disputes in these areas. Our ‘European M&A Study 2020’ reported that although decreasing slightly year-on-year, escrow accounts continue to be used as the most popular form of security for warranty claims. Escrow accounts therefore commonly feature in M&A disputes and we anticipate that this trend will continue.
The increased importance placed by parties on security for warranty claims is also reflected in trends in the W&I insurance sector. Nearly every study conducted by insurers and law firms in the last two years has shown an upward trend in the number of M&A deals that are now insured by W&I policies.
Apr-Jun 2021 issue
CMS Cameron McKenna Nabarro Olswang LLP