Purchase Price Disputes – Working Capital Best Practices
Purchase price disputes are a common post-closing challenge in M&A transactions, often arising from discrepancies between the seller’s estimate of transferred closing working capital and the buyer’s post-closing adjustments, both measured against the target working capital specified in the contract. These unresolved discrepancies can significantly affect the final terms of the agreement and are usually addressed through private arbitration in an ad-hoc proceeding. Understanding the dynamics of these disputes and implementing best practices is crucial for protecting the interests of all parties involved.
Navigating post-closing purchase price disputes requires understanding their common triggers and consequences, such as discrepancies in working capital, differing accounting practices, and ambiguous GAAP references. These disputes often arise from fluctuations in financial estimates and result in financial adjustments, arbitration costs, and operational disruptions. The resolution process typically involves an independent accountant reviewing detailed submissions from both parties. To mitigate these risks, it is essential to document and manage accounting practices consistently, conduct thorough due diligence, and agree on clear contractual terms. Adhering to GAAP ensures consistency and transparency, reducing the potential for disputes. DLA, LLC provides expert guidance in managing these disputes, focusing on strategic insights and best practices to protect your interests and facilitate smoother M&A transactions.
We discuss key areas such as:
- Disputed Balance Sheet Items
- Fact-Based Items
- Significant Accounting Judgment
- Dispute Process – Best Practices
- Sellers
- Buyers