Ahead of the Mergers & Acquisitions webinar in March, we caught up with presenter Dawna Wright to unpack purchase price adjustments and post-acquisition disputes.
In your upcoming talk at the Mergers & Acquisitions webinar, you'll be discussing how to strategically use purchase price adjustments. Could you explain what that means and how practitioners can turn these disputes into opportunities rather than setbacks?
In the US, I often saw purchasers using the draft completion accounts review stage to analyse the numbers for potential adjustments. I’m also starting to see this approach more frequently here in Australia.
Depending on how the sale agreement is drafted, buyers may be able to secure significant reductions in the purchase price by accounting for factors such as slow-moving stock, incorrect revenue recognition, or understated provisions.
If purchasers identify potential adjustments during due diligence, they can work with their legal team to ensure the sale agreement allows for those adjustments to be made at the completion accounts review stage. On the other hand, vendors should ensure the agreement is ‘air tight’ to minimise risk.
What are some of the best practices for ensuring the efficacy of the expert determination process? And how can lawyers involved help the expert reach a result that works in their favour?
Expert determination is a process led by a practitioner with specialised expertise, such as an accountant. However, running a dispute resolution process requires a different skill set than simply understanding accounting standards, so it is crucial for the parties to select a determiner experienced in managing the process.
Once the process begins, lawyers can maximise the chances of success by structuring their submissions in a way that aligns with an accountant’s reasoning and approach to analysing accounting standards. Additionally, the parties must support their assertions with solid accounting evidence, often tracing back to source data like journal entries and general ledgers. Ultimately, they must recognise that the devil is in the detail.
How do courts generally approach post-acquisition disputes, and have you observed any recent trends in their handling of these cases?
A litigation proceeding is quite different from an expert determination, primarily because the decision maker is a judge rather than an accountant or valuer. In my experience, there is often uncertainty about how the court will approach valuation issues. While there are a few judgments relevant to post-acquisition disputes, their reasoning tends to be highly case-specific, making it challenging to determine how a ruling in one case might apply to another. Although, I am looking forward to exploring some examples in the seminar!
When it comes to post-acquisition disputes and purchase price adjustments, what are the most common issues that get litigated? Where do clients often face the most conflict or uncertainty from a risk management perspective?
Valuation challenges, such as assessing the alternative price of shares or determining a business's "true value," are highly subjective. There’s no single way to define or assess value; it’s a mix of both art and science. On top of that, these disputes tend to involve significant amounts - otherwise, the parties wouldn’t be going through the litigation process. Combining that with the lack of clear guidance from the courts creates a lot of risk and uncertainty for the parties involved. In the webinar, we’ll dive into these risks and discuss ways to manage them.
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