Explore the challenges of post-closing cash disputes in M&A transactions through the lens of a Puerto Rico case. Gain insights into the importance of comprehensive agreements and learn from the experiences of the parties involved.
M&A Stories
November 26, 2018
In this M&A story, a post-closing clash arose between a stock buyer and seller over the cash holdings of a company that owned two buildings in Old San Juan, Puerto Rico. The company, dealing in commercial and residential spaces, had its rent collections deposited in UBS bank accounts.
The sale, valued at $1.8 million, took place in late September 2015 under a stock purchase agreement. Trouble brewed after the buyer discovered the absence of cash left by the sellers in the company. The 2014 financials had indicated $219K in the bank accounts, leading to federal district court litigation in Puerto Rico.
The buyer contended that the purchase included all company assets, including cash, while the sellers argued it was limited to real estate. Examining the stock purchase agreement and 2014 financials, the court found insufficient evidence to resolve the dispute early in the litigation, allowing it to persist.
In hindsight, including language in the agreement specifying the inclusion of the company’s cash could have averted this dispute. Often, such issues are preemptively addressed through post-closing purchase price adjustments, tied to metrics like net working capital, net worth, or other agreed-upon financial measures between the buyer and seller.
Case Reference:
This case is referred to as Gazelle v. MR 314 Fortaleza LLC,, Civil No. 16-2500 (GAG), United States District Court, D. Puerto Rico (March 12, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments