Thu, Jun 18, 2020

Pre-Closing MAE/MAC to Post-Closing M&A Purchase Price Disputes

The World Health Organization characterized the Covid-19 virus as a pandemic on March 11, 2020. It is difficult to fully measure, or even describe, the financial and economic disruptions attributable to the pandemic thus far, or to reliably estimate the long-term consequences. The current economic volatility has led to heightened focus on the potential applicability of MAE clauses for any signed transaction that has not yet closed. If Covid-19 has, for example, led to supply chain disruptions or loss of customers for the target, at what point can it reasonably be determined that an MAE has occurred?

Similarly, for closed M&A transactions, the business dislocations attributable to Covid-19 will likely make the post-closing determination of the target's closing working capital a more onerous and potentially disruptive exercise, as there are likely to be significant differences between a seller's and a buyer's estimations of the target's accounts receivable and inventory, among other accounts, in the pandemic environment.

In this Bloomberg Law article, Norman Harrison, Frank Lazzara and MaryEllen Redmond outline the key accounting, financial, and economic analyses that parties and counsel to M&A transactions should undertake in this period of unprecedented economic disruption in attempting to resolve MAE and working capital disagreements or to support their litigation or arbitration posture if disagreements can't be resolved through negotiation.

Read more here.

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