Sale and purchase agreement – equity price negotiation

• We can assist you and your advisers in considering the adjustments to be made between Enterprise Value and Equity Value and in formulating the arguments and counter-arguments required to justify your proposed approach
  
• We can advise you in your determination of the appropriate financial benchmarks (or appropriate adjustments to price in the case of a 'locked box' (fixed price) mechanism) and related arguments, for the purposes of price negotiation and drafting the SPA
  
• We can advise you in your analysis of the working capital requirements of the Business with a view to you determining the normalised working capital for the purposes of your negotiation of the SPA
  
• We can work with you and your financial due diligence team to assist you in mitigating the risks identified during the due diligence phase
  
• We can advise you in your negotiations of the accounting aspects of the SPA. Such advice would include commentary on the pricing mechanism, relevant representations and warranties (if any), any other accounting related clauses of the SPA and any dispute resolution mechanisms related to the purchase price adjustment (including as appropriate, consideration of tax related items)

We’ve seen a rise in the number of deals involving an earn-out mechanism in recent years as buyers are increasingly cautious about what protection to insist on should things not turn out as expected. As a result, price is becoming conditional on the future performance of the target.

Our specialist SPA advisory team works with clients to get the relevant SPA clauses right – to maximise deal value and minimise the likelihood of disputes. When disputes do arise, we assist clients with assessing the implications of earn-out mechanisms, determining whether targets have been met and quantifying the amount payable or receivable.

Expert Determination is the most common form of dispute resolution for post-deal purchase price adjustments and offers several benefits over litigation and arbitration. Speed, lower costs, privacy and the finality of the outcome are among these benefits, while it’s up to the parties themselves to manage the risks. Our specialists are frequently appointed to act as independent expert to resolve transaction disputes through the determination process.

Whether we’re acting in the expert role or advising a party, we work with you to get the process right from the outset. When advising a party to the dispute, we help clients to:

• appoint an appropriate expert, taking into account the technical accounting, commercial and industry issues at stake,
• develop a strategy based on the information available and the strengths and weaknesses of their position,
• prepare written submissions, review the other party’s submissions and respond to information requests from the independent expert.

Although most Sale and Purchase Agreements provide protection for buyers in the form of warranties and indemnities, seeking compensation by way of a warranty claim is far from straight-forward. If there has been a breach, early consideration of the likely cost/benefit of your claim is crucial.

• We regularly advise both claimants and defendants and their legal counsel on the financial and accounting aspects of warranty claims. Our services include:
• Strategic assessment and planning – we work collaboratively to assess the merits of a claim and develop the case strategy. We can help you to gather the information you need and consider your options for presenting or defending a claim.
• Quantification of the claim – working with colleagues from our valuations, economics and industry teams, we quantify the damages that will put the claimant back in the same position as if the warranties had not been breached.
• Presenting your position – we can assist by drafting arguments for submission or rebuttal of a claim.
  

However, if matters do go to trial, our experts can provide written and oral testimony in respect of your claim.