Explore a real-life M&A case involving a dispute over purchase price adjustments and the importance of streamlining this process. Learn how specifying the accounting firm in the APA could have saved time, stress, and money.
September 20, 2019
M&A Stories
Introduction:
In the world of business acquisitions, price negotiations often involve fine-tuning the numbers through mechanisms like working capital adjustments. Let’s dive into a real-life case that highlights the importance of streamlining this process.
The Story:
Once upon a time, in a $1.25 million asset acquisition involving contract manufacturing, industrial fabrication, and installation services, the asset purchase agreement (APA) had a common feature – a closing working capital purchase price adjustment mechanism.
Here’s how it worked: After the closing, the buyer would calculate the closing working capital, and if there was a dispute, an independent accountant would step in. The catch was that the accountant had to be mutually agreed upon by both the buyer and the seller.
The Twist:
After the closing, the buyer’s calculation suggested an $82,000 upward adjustment in the purchase price. However, the seller disagreed, and they couldn’t see eye to eye on selecting an accountant to resolve the issue.
The Drama:
The disagreement escalated into a legal battle that spanned Pennsylvania trial courts and intermediate appellate courts. The appellate court described this journey as “long, tortured, and convoluted.” Eventually, the appellate court ordered the trial court to transfer the dispute to an independent accountant.
The Lesson:
Fast forward almost three years, and the battle still rages on. The key takeaway here is that a more streamlined approach, like specifying the accounting firm in the APA, could have resolved this dispute much earlier. Leaving the accountant’s selection to the heat of a dispute ended up costing both parties valuable time, stress, and money.
In Conclusion:
In this case, we learn that simplifying the process of resolving purchase price adjustments can save businesses a world of trouble. For smart entrepreneurs, CEOs, CFOs, and professionals in the M&A field, this story serves as a reminder to keep things clear, concise, and efficient in the complex world of mergers and acquisitions.
Case Reference:
TTSP Corporation v. Rose Corporation, No. 1498 MDA 2018, Superior Court of Pennsylvania (Filed: August 27, 2019)
By John McCauley: I help companies and their lawyers minimize legal risk associated with small U.S. business mergers and acquisitions (transaction value less than $50 million).
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