Page 28 - M & A Disputes

 Contract vetting

 Dispute support

 ADR arbitration and mediation

Contract Vetting

Prior to executing an acquisition agreement, practitioners may be asked to evaluate the financial and
economic components of the transaction either as part of the buyer’s due diligence process or as part of
the seller’s deal evaluation. The practitioner’s role in such engagements is to provide consultation to as-
sist the retaining party in its assessment of the transaction and to identify potential areas of disagreement
requiring contract modification.

Buyers conduct due diligence to understand the potential risks associated with the transaction. This pro-
cess includes, but is not limited to, an evaluation by finance and accounting professionals of the target
company’s historical and current financial statements and an assessment of past, present, and projected
performance of the target.

In an asset acquisition, the due diligence assessment incorporates procedures designed to confirm the
quality, existence, and earnings potential of the target assets. In a stock acquisition, due diligence may
be conducted to

 confirm the existence of the assets and liabilities described in the financial statements.

 identify and quantify unrecorded liabilities.

 assess the reasonableness of significant management estimates (for example, reserves).

 understand the quality of historical earnings.

 identify significant nonrecurring or nonoperating events that have impacted historical earnings.

 understand the consistency of the seller’s historical accounting.

Based on what information is gathered in the due diligence process, a prospective buyer may alter its
bid; propose a contractual carve-out of certain assets, liabilities, and contingencies; request modifica-
tions to the postclosing purchase price adjustment mechanism; or negotiate additional contractual repre-
sentations and warranties to be made by the seller.

Dispute Support

Practitioners are frequently engaged by one of the parties to the transaction to support the dispute pro-
cess as financial advisors. Typically, practitioners engaged in such a role assist their client in the follow-
ing areas:

 Identification of dispute items

 Discovery

 Claims analysis

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