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Even well-structured merger and acquisition (M&A) deals can face turbulence after the close, especially when expectations, accounting, or economics drift apart. Studies show that nearly 1 in 10 M&A transactions lead to post-close disputes between buyers and sellers.
When conflicts arise after a deal has closed, they can escalate quickly, disrupting execution, diverting leadership focus, and undermining deal value. By anticipating potential post-acquisition disputes, you can better protect both your investment and your reputation.
In this article, we explore the most common causes of post-acquisition disputes, what should happen versus what often goes wrong, and best practices to reduce risk and preserve value.
Conflicts after a deal closes can stem from a range of triggers, some operational, others contractual. Below are the most common types:
Disagreements over working capital calculations and close procedures are among the top culprits. These typically arise when Generally Accepted Accounting Principles (GAAP) differ from the seller’s historical practices or when the M&A agreement lacks clear, specific language around what’s included in the calculation.
When future compensation depends on hitting specific targets, ambiguity or differing interpretations can quickly lead to disputes, particularly around how those metrics are measured and reported.
Buyers may claim that sellers misrepresented the business, intentionally or not, resulting in financial losses. Poorly defined indemnification clauses or limited survival period can complicate resolution.
Disputes often arise over how the purchase price is allocated across tangible and intangible assets. These disagreements typically involve both valuation judgments (e.g., the fair value of intellectual property, customer relationships, or inventory) and accounting interpretations under GAAP. Misalignment here can lead to post-close issues with goodwill, amortization, deferred taxes, or financial reporting, particularly if the parties didn’t engage independent valuation or accounting advisors upfront.
Too often, these disputes are reactive, handled only after tensions have escalated and communication has broken down. However, there are proactive steps that can reduce risk and protect both parties.
Avoiding surprises starts well before the deal closes. By taking a proactive, cross-functional approach to diligence, negotiation, and documentation, deal teams can reduce uncertainty and improve post-close alignment.
These five strategies can help reduce the risk of post-close disputes and strengthen outcomes across any transaction.
Align early on how key metrics, such as including working capital targets, earnings before interest, taxes, depreciation and amortization (EBITDA) adjustments, and deal-related expenses will be calculated and documented. This is especially critical when earnouts or other post-close payouts are involved, where even small changes in accounting methods or timing can shift outcomes and trigger disputes. Clear definitions and agreed-upon methodologies help prevent disputes before they start.
Independent specialists, such valuation, diligence, technical accounting, and M&A tax advisors, can help validate assumptions, align expectations, and flag risks early. Their insight is especially valuable in areas like earnouts, working capital, and purchase price allocation.
Include clear language in the M&A agreement on how disputes will be resolved (e.g., mediation, arbitration, neutral expert, litigation), as well as who bears responsibility for timing, scope, and costs.
Missteps in merger-related tax structuring or compliance can lead to costly post-close consequences. Involving legal advisors early in the process helps mitigate risks and ensure a well-aligned deal structure.
Complexity often increases with private equity (PE) backed transactions involving multiple stakeholders. Assembling a team with aligned accounting, legal, operational, and cultural perspectives helps reduce blind spots and friction after the close.
Minor oversights in M&A agreements can lead to major repercussions. Disputes are preventable with proactive support. At Elliott Davis, we’ve worked with both buyers and sellers in the M&A process, as well as with attorneys, investment bankers, and PE firms to:
Every deal carries risk. Proactive planning can make the difference between conflict and confidence. We’re here to help you get ahead of it. Contact Elliott Davis today.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.
