Dive into the intricacies of mergers and acquisitions with our latest blog post, ‘Avoiding Escrow Woes: A Cautionary Tale for M&A Participants.’ Explore the real-world case of The HC Companies, Inc. v. Myers Industries, Inc., and unravel the complexities surrounding indemnification claims and the importance of timely objections. Gain valuable insights for M&A practitioners, entrepreneurs, and business enthusiasts. Learn how vigilance and attention to detail can safeguard your interests in the dynamic world of mergers and acquisitions.
M&A Stories
June 28, 2018
In the intricate dance of mergers and acquisitions, the details matter, as illustrated by a cautionary tale in the case of The HC Companies, Inc. v. Myers Industries, Inc. (C.A. No. 12671-VCS, Court of Chancery of Delaware, December 5, 2017).
The narrative unfolds in February 2015, when a buyer acquired a lawn and garden business, inheriting vital assets, including equipment crucial for manufacturing. Central to this transaction was the seller’s assurance, backed by an $8.6 million escrow, that the equipment was in pristine condition. The safety net was the seller’s commitment to indemnify the buyer for damages if this representation fell short.
The plot thickened shortly after the deal closed. The buyer, armed with diligence, sent an indemnification claim notice, asserting the seller’s breach due to subpar equipment. The claim sought almost $8 million from the escrowed funds. In a timely response, the seller objected, citing a lack of specificity in the buyer’s claim.
Undeterred, the buyer refined its claim in July 2016, presenting detailed charts of deficient assets and a total claim exceeding $10 million. However, the seller’s response came outside the 10-day objection window stipulated in the agreement. When the buyer demanded payment, the seller refused, sparking litigation.
The core of the dispute was the timeliness of the seller’s objection. The seller argued that its objection to the first claim sufficed for the second, as they addressed the same issue. The court disagreed, emphasizing the distinct nature of the two claims. Result? The seller waived its right to contest the buyer’s claim, and the $8.6 million returned to the buyer.
The lesson echoes loudly in this narrative: always register objections to indemnification claims before the deadline expires. In the intricate world of M&A, vigilance and attention to detail can be the shields that protect one’s interests.
As M&A practitioners, entrepreneurs, and business enthusiasts, take heed from this case. In the delicate ecosystem of mergers and acquisitions, meticulousness can be the difference between preserving and forfeiting millions.
Case Reference:
This case is referred to as The HC Companies, Inc. v. Myers Industries, Inc., C.A. No. 12671-VCS, Court of Chancery of Delaware (December 5, 2017).
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
Recent Comments