Whether you’re buying or selling a company, post-transaction should be a time for celebration about getting the deal done and excitement about the future. But many deals quickly devolve into disputes over the finer points, from purchase-price adjustments and working-capital disputes to whether negotiated earnout metrics are attained.
Post-merger disputes have become an endemic problem. According to SRS Acquiom research, in 2016, 39 percent of deals included a separate escrow specifically for post-closing purchase-price adjustments. The average agreement holds back 10% of the deal value in a general escrow account and some can hold back 15% or more. Deals valued at $50 million or less tend to withhold larger escrow percentages, making it particularly important for middle-market companies to follow best practices during negotiations in order to minimize disputes.
With M&A activity expected to gather even more steam in 2018, buyers and sellers should pay particular attention to five areas that can generate the most trouble after the deal is done.