Page 21 - M & A Disputes

Postacquisition disputes commonly arise regarding purchase price adjustments and earnouts or as a re-
sult of alleged breaches of representations, warranties, or covenants detected during the buyer’s post-
closing due diligence. With respect to the latter, most acquisition agreements provide for indemnifica-
tion of losses arising from such breaches.

The Acquisition Agreement

The acquisition agreement is the definitive contract detailing the terms of an agreed-upon transaction
between parties to purchase, sell, or combine separate companies or the assets thereof. The form of the
acquisition agreement depends on what is being acquired. Asset purchases and stock purchases are ac-
complished via an asset purchase agreement or a stock purchase agreement, respectively. Acquisition
agreements commonly feature many of the same elements, although these elements invariably differ in
exact contents from one transaction to the next. The following discussion does not purport to be a com-
prehensive itemization of the different components of acquisition agreements. Rather, the following dis-
cussion highlights relevant components of acquisition agreements that forensic accountants may encoun-
ter when providing services in conjunction with an M&A dispute.

Recitals

The "Recitals" section of the acquisition agreement enumerates the parties to the agreement and their de-
sire to transact.

Definitions

Often, the acquisition agreement incorporates a "Definitions" section that defines terms appearing within
various components of the contract. Forensic accountants encountering acquisition agreements should
carefully examine the "Definitions" section. In agreements incorporating a "Definitions" section, key
terms such as closing date, purchase price, working capital, GAAP, accounting policies and procedures,
ordinary course of business, material adverse change, or material adverse effect may be defined. Even
when a "Definitions" section exists, terms may also be defined within the body of the agreement.

Sale and Transfer

Acquisition agreements typically follow "Recitals" and "Definitions" sections with a "Sale and Transfer"
section that sets forth the terms and structure of the M&A transaction. Specifically, this section of the
agreement is meant to

 identify the business interest, assets, or shares to be exchanged and the structure of the transac-
tion (that is, stock purchase, asset purchase, merger, and so on).

 set forth the closing process and timing.

 document the agreed-upon purchase price amount.

 document any purchase price adjustment contemplated by the parties and define the related pur-
chase price adjustment mechanism.

To the extent that the transaction is structured as an asset purchase subject to an asset purchase agree-
ment, this section will identify the corresponding assets and liabilities subject to the agreement. If the

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