Forensic Accounting Experts Support Post-Acquisition Dispute Litigation
Thorough investigations facilitate resolutions to M&A conflicts
Buyer’s remorse is an awful, sinking feeling. You thought you’d acquired a key asset to drive your business development plan, but something isn’t quite right. Now comes the creeping dread as you wonder what exactly went wrong. Did you fail in your due diligence, or did the buyer misrepresent some key facts? Have you overpaid, and by how much? But most importantly, can you recover any of your losses? At North American Forensic Accounting PC, we help sort out post-acquisition disputes. Drawing on decades of forensic accounting experience, we pore over business records and review key aspects of the transaction to determine whether adjustments in terms of compensation are warranted. Working with attorneys for buyers or sellers, we uncover areas of concern and clarify points of contention. We apply our accounting expertise to produce reliable analysis that can survive scrutiny in court, and we’re ready to stand behind our work, offering confident expert witness testimony in your case.
Common post-closing disputes in business transactions
Mergers and acquisitions are complex procedures that rely on various assessments of performance, as well as projections of future performance. Parties rely on the veracity of these assessments to structure all elements of the deal. Unfortunately, after the deal has been struck, parties may find that reality does not match expectations, giving rise to issues in key areas, such as:
- Working capital — The parties to a transaction can only estimate how much net working capital the target company will have on hand at closing. When NWC doesn’t match the projection, the buyer may need to fund the shortfall so operations continue smoothly.
- Representations and warranties — Buyers rely on honesty and transparency from the sellers, who “warrant and represent” that their business records accurately reflect operations. But what a seller has represented in deal documents does not always mesh with the buyer’s experience after closing. If the seller has made material misrepresentations, the deal is in jeopardy. Different terms could be negotiated to salvage the deal, or the seller could be liable for damages to the buyer.
- Earnouts — Earnout provisions are basically bonus payments the buyer makes to the seller if the company achieves higher than anticipated, post-sale metrics. Earnouts can cause controversy based on the differences in the parties’ expectations. Buyers generally believe the earnout levels are too high to ever trigger payout, while in their minds, the sellers have already spent the money. To avoid expensive litigation over this issue, you need a reliable evaluation of performance that both parties can trust.
Of course, these are key issues parties should address before the deal, and hiring the right accounting firm for M&A due diligence can help reduce the likelihood of disputes down the line. But in many cases, there is no hint of difficulty until after closing.
Trustworthy evaluations of representations and warranties
The most difficult types of post-transaction conflicts arise when the buyer suspects the seller has misrepresented key facts about business performance to induce the buyer to make a bad deal. The seller’s liability for this type of misconduct is significant, and proving liability could be the buyer’s best way out of a losing proposition. At NAFA, we believe in getting to the truth behind the numbers, and presenting that truth in clear, understandable terms. In this way, our work helps speed reasonable settlements of even the most contentious disputes.
When we undertake an evaluation of representations and warranties, our team:
- Reviews all pertinent documentation
- Scrutinizes the quality of the target company’s financial statements and presents our opinion of whether they comply with Generally Accepted Accounting Principles (GAAP) or perhaps another comprehensive basis of accounting
- Highlights points of concern in the target company’s underlying financial data and analysis used as part of the transaction
- Reviews the business valuation used as a basis of the purchase price, and presents our opinion on the underlying methodology and variables
Our goal is to present the highest degree of clarity possible, so that whether you are a plaintiff buyer or a defendant seller, you know the truth behind the numbers and can plan your legal strategy accordingly.
Contact NAFA for reliable forensic accounting services for your post-acquisition dispute litigation
North American Forensic Accounting PC supports businesses and their attorneys engaged in post-acquisition disputes throughout the United States. NAFA serves clients throughout the United States, including in Philadelphia, Pittsburgh, New York City, Atlanta, Charlotte, Miami, and the Tampa Bay Area. Call us at 347-286-4860 or contact one of our offices online to schedule an appointment.