Explore a recent M&A case where a Spanish conglomerate faced post-closure challenges due to federal law violations in a New York-based construction company. Gain insights into the importance of due diligence in navigating risks associated with minority business participation programs on federally funded projects.
M&A Stories
November 20, 2018
In a recent M&A case, a Spanish conglomerate, the buyer, faced post-closure challenges involving federal law violations by a New York-based construction company. The acquired firm, a major player in heavy construction, had run afoul of minority business participation programs on federally funded projects. This led to a substantial post-closure payout of $22.4 million to the government.
The violations originated from inaccurate reports submitted to the Metropolitan Transit Authority and the New York City Department of Environmental Protection. These reports falsely claimed compliance with minority business participation rules on federally funded projects. Post-acquisition, the buyer uncovered that the company had received a subpoena from the Metropolitan Transit Authority prior to closing, a critical detail not disclosed during the transaction.
Responding to these challenges, the buyer initiated legal action, citing breaches of representations and warranties made in the stock purchase agreement. The court awarded damages to the buyer, a decision upheld on appeal. The appellate court affirmed that the damages resulted directly from the seller’s breach of assurances regarding the accuracy of the company’s records and its non-involvement in government investigations.
Key Takeaways:
Risk in Federal Projects: Businesses engaged in federally funded projects face potential audits due to stringent minority business participation requirements, with audit outcomes carrying significant financial implications.
Importance of Due Diligence: The case underscores the critical role of due diligence. Buyers should thoroughly investigate potential risks, seeking expert assistance when dealing with businesses relying on minority business participation programs.
Case Reference:
Schiavone v. Dragados, SA, Nos. 16-2219, 16-2439, United States Court of Appeals, Third Circuit (Opinion filed: April 3, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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