Navigating M&A purchase price adjustments can be tricky. This blog post dissects a recent legal case highlighting a common pitfall in lower middle market deals: the failure to pre-select an accounting firm for working capital dispute resolution. Learn how this oversight led to costly litigation.
M&A Stories
May 15, 2025
It is common in M&A to adjust the purchase price based upon the net working capital as of a measurement date. The parties base the tentative purchase price upon the estimated net working capital and adjust the purchase price after the actual net working capital has been determined. Unfortunately, disputes over the final number are common. Usually, the final resolution is left up to an independent accounting firm.
Often, the parties identify the accounting firm that will make the final determination in the M&A agreement. But sometimes, the parties instead agree to mutually pick an accounting firm if they cannot agree upon the final number. This case illustrates how deferring the choice of an accounting firm until after a dispute breaks out may lead to unnecessary litigation.
This case involved the acquisition of maker of specialty paper products. The deal was structured as a merger and the purchase price was to be adjusted up or down based upon the difference between the estimated net working capital and the finally determined net working capital. Under the agreement, after closing, the buyer determines the final number, and if the seller disagrees, and they can’t resolve the dispute, the final determination is to be made by a nationally recognized neutral accounting firm, to be mutually selected by the buyer and the seller.
In this case the seller did not accept the buyer’s determination of the final number. Furthermore, the parties could not agree on an accounting firm. So, the case ended up in New York state court who ordered the parties to select an accounting firm from a court provided list, and if they can’t, the court would make the selection.
We don’t know why the parties did not identify an accounting firm in the merger agreement. Had they done so they would have saved substantial time and money in revolving this dispute. Parties should decide upon the accounting firm up front when relations are more cordial than after a dispute breaks out.
See: Matter of Decree-Crane Special Papers NA, LLC v. WP Strategic Holdings, LLC, Index No. 912660-24, Supreme Court, Albany County, (April 16, 2025).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals..
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
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