M&A Transaction Dispute Accounting Expert
Mergers and acquisitions generate accounting disputes long after completion. Completion accounts mechanisms adjust the purchase price by reference to the target's financial position at the closing date, typically comparing actual net debt, working capital, and cash against agreed targets or collars. Dispute accountants analyse the sale and purchase agreement's accounting policies, identify departures from GAAP or agreed definitions, and quantify the price adjustment required. Normalisation disputes, whether certain costs were one-off, whether revenue was properly recognised, and how stock and debtors were valued, are resolved through detailed review of the completion balance sheet and underlying ledgers.
Warranty and indemnity claims allege that the seller misrepresented the target's financial position. The accountant quantifies loss arising from breach, for example, understated liabilities, overstated debtors, or undisclosed tax exposures, and addresses causation between the breach and the buyer's economic loss. Earn-out disputes arise when sellers allege that buyer conduct suppressed post-completion performance: diversion of customers, failure to invest, integration decisions, or accounting policies that reduce EBITDA. Experts construct but-for models showing what the business would have achieved absent alleged breach and apply the contractual earn-out formula to the resulting shortfall.
Locked box transactions fix the purchase price by reference to accounts at a historical locked box date, with the seller retaining economic risk and reward until completion through permitted leakage covenants. Disputes focus on whether payments between the locked box date and completion constitute leakage, whether working capital movements were permitted, and who bears the cost of intervening events. M&A dispute accountants must understand transaction timetables, disclosure letter interactions, and the difference between price adjustment claims and damages claims for misrepresentation.
Frequently Asked Questions
What accounting disputes arise most commonly in M&A deals?
The most common disputes are completion accounts disagreements over net debt, working capital, and normalised EBITDA; warranty claims for undisclosed liabilities or overstated assets; earn-out shortfalls where the seller alleges the buyer managed the business to frustrate targets; and locked box leakage claims for dividends, management charges, or related-party payments between the locked box date and completion. Tax indemnities, pension deficits, and earn-out accounting policy disputes also feature regularly. Experts must read the SPA's definitions carefully, terms such as 'ordinary course of business' and agreed accounting principles often determine the outcome.
What is a "locked box" and why does it cause disputes?
A locked box mechanism fixes the equity price by reference to accounts at an agreed historical date (the locked box date), rather than adjusting price at completion based on closing accounts. The buyer acquires the target with the seller having managed the business from the locked box date to completion, subject to covenants restricting 'leakage', value moving out of the target to the seller or related parties. Disputes arise because parties disagree whether specific payments were permitted leakage, whether economic risk transferred appropriately, or whether the buyer inherited liabilities that should have been reflected in the locked box price. Forensic review of cash movements, intercompany balances, and board minutes between the locked box date and completion is essential.
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