M&A Disputes. Biemans A. Vincent

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      A. Vincent Biemans, Gerald M. Hansen

      M & A disputes: a professional guide to accounting arbitrations

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M&A Disputes

A Professional Guide to Accounting Arbitrations

      A. VINCENT BIEMANS

      GERALD M. HANSEN

      Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved.

      Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

      Published simultaneously in Canada.

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       Library of Congress Cataloging-in-Publication Data:

      Names: Biemans, A. Vincent, 1977- author. | Hansen, Gerald M., 1967- author.

      Title: M & A disputes: a professional guide to accounting arbitrations / A. Vincent Biemans, Gerald M. Hansen.

      Other titles: Mergers and acquisitions disputes

      Description: Hoboken, New Jersey: John Wiley & Sons, 2017. | Series: Wiley finance series | Includes index. |

      Identifiers: LCCN 2017009404 (print) | LCCN 2017014047 (ebook) | ISBN 9781119331933 (pdf) | ISBN 9781119331940 (epub) | ISBN 9781119331919 (cloth)

      Subjects: LCSH: Consolidation and merger of corporations – Accounting. | Arbitration (Administrative law)

      Classification: LCC HG4028.M4 (ebook) | LCC HG4028.M4 .B54 2017 (print) | DDC 657/.96 – dc23

      LC record available at https://lccn.loc.gov/2017009404

      Cover Design: Wiley

      Cover Images: © maxuser/Shutterstock

The authors would like to thank their wives, Lenora and Rachel, for their love and support and, importantly, their willingness to listen to excited work stories that have GAAP as the protagonist

      Preface

Why This Book

      M&A transactions continue to be an important part of the corporate and investment landscape. Many of the purchase agreements governing those transactions contain post‐closing purchase price adjustment mechanisms. As a result, after‐the‐fact adjustments to the purchase price are commonplace.

      In many instances, those adjustments remain limited to a series of uncontroversial accounting true‐ups. Purchase price adjustment mechanisms can, however, have a significant impact on the deal value to one or both parties. Sellers and buyers can be easily caught off guard by a sizeable proposed adjustment, problems with the company's accounting, or some perceived unreasonable position by the counterparty. In some instances, the impact on the ultimate purchase price paid by buyers and received by sellers can make or break transactions.

      In the event of a dispute regarding a post‐closing purchase price adjustment, the purchase agreement commonly provides for the matter to be brought before an independent accountant for resolution. The parties rely on their attorneys and accountants to advise them on the successful resolution of those disputes before the accounting arbitrator. The resolution process, however, can be opaque for those unfamiliar with it and the area is under‐published. Moreover, there are distinguishing characteristics and unique considerations when comparing the field of M&A accounting arbitrations and the broader legal and accounting professions.

      This book seeks to provide guidance to current and potential practitioners, whether in‐house or at a professional services firm, in resolving – and perhaps preventing – M&A disputes. It aims to provide the reader with an in‐depth walkthrough of the M&A dispute resolution process and practical guidance on achieving the best results for their clients from the diligence phase through final resolution. It also seeks to provide would‐be arbitrators with the handhelds needed to arrive at an informed and appropriate award. In addition to a discussion of the post‐closing purchase price dispute resolution process, this book also discusses steps the transaction parties can take to potentially mitigate the scope and severity of any post‐closing purchase price dispute.

The Organization of the Book

      We have organized the book into five separate, but interrelated, parts.

      The first part – The M&A Dispute Framework – provides an introduction to purchase price adjustment mechanisms, an overview of the post‐closing purchase price adjustment process, and the dispute resolution process before the accounting arbitrator. It also provides a more specific introduction to net working capital adjustment mechanisms. We selected net working capital adjustment mechanisms as the primary basis for discussion throughout most of this book for its prevalence in practice as well as the analogous applicability of many of the identified issues to other adjustment mechanisms. Notably, post‐closing adjustment mechanisms and the related dispute resolution process can be – and often are to some extent – customized as they are contractual in nature. Notwithstanding, the (net working capital) adjustment mechanisms and resolution procedures generally have more in common than they are different.

      The second part – Core Concepts and Issues – discusses a variety of recurring elements across purchase price adjustments