Post-acquisition disputes are a familiar feature of the M&A lifecycle, which can be costly. While deal negotiation conflicts draw headline attention, many disagreements arise after closing, when buyers and sellers revisit the purchase agreement to determine whether the economics and disclosures align with what was negotiated.
In many cases, the dispute isn’t driven by bad intent. It’s driven by ambiguity: contract terms that rely on subjective judgments, undefined thresholds, or procedures that don’t specify objective calculation methodologies. The most effective way to handle post-acquisition disputes is to prevent them through precise drafting of aligned expectations within the agreement, and a deal process that integrates legal, accounting, and tax perspectives from the beginning.
Note: Transaction structures and market practices are continuously evolving. Any references to current “typical” deal terms, insurance usage, or dispute forums should be confirmed with current authoritative accounting standards, tax regulations, industry and market data, and laws within the deal’s specific jurisdiction.
A Practical Dispute Timeline
Many post-closing disagreements follow a predictable path:
- M&A agreement is signed
- Post-closing review period (exchange of trued-up financial metrics)
- Dispute notice period (reconciliation of underlying detail to trued up financials and opportunity for formal objection)
- Good faith negotiation period
- If the parties are unable to come to terms during the good-faith negotiation period, neutral determination / arbitration / litigation (often final and binding)
- The parties either come to terms or they enter into neutral determination, arbitration or litigation (often final and finding)
Purchase Price Adjustments
Purchase price adjustment disputes often involve disagreements over the working capital calculation per the closing balance sheet. These issues tend to surface because the agreement doesn’t clearly define items such as:
- Which specific accounts are included/excluded
- The specific reserve measurement methodologies
- How conflicts between current “GAAP” and the company’s “past practice” should be resolved
A common clause states the closing balance sheet will be prepared “in accordance with GAAP and consistent with past practices.” But what if the company’s historical accounting practices diverged from GAAP, or if “consistency” is interpreted differently by each party?
- Establish an accounting hierarchy (e.g., company’s past practice, GAAP except as specified, or specific agreed-upon policies that control)
- Include a comprehensive illustrative calculation (sample schedule) tied to this accounting hierarchy and other relevant agreement terms
- Improve consistency among the agreement’s terms, definitions, and illustrative schedules
- Define the dispute process: timelines, required support, scope of the neutral accountant’s authority, and whether a neutral determination is final and binding
Earnouts
Earnouts can help bridge gaps in the parties’ views of the deal value, but they extend deal exposure into the post-close period, when control has shifted to the buyer and business conditions may change.
Earnout disputes arise when parties disagree on whether the earnout target was achieved.
Common drivers include:
- Undefined metrics (revenue vs. net revenue; EBITDA add backs)
- Metrics definitions with qualifiers that are subject to interpretation such as “historical,” “excessive,” or “non-ordinary course”
- Changes in the company’s accounting policies post close
- Sellers’ expectations that the earnout would be met based on periodic reporting by the buyer throughout the earnout period, which is trued up after the earnout period
- Disagreements over how the buyer operated the business during the earnout period
- Define performance metrics and applicable accounting methods with specific, measurable components.
- Address governance: reporting cadence, reporting limitations, sellers’ access to records, and escalation steps.
- Clarify operational expectations during the earnout period (what is permitted, restricted, or must be consistent).
Representations and Warranties (R&W)
Buyers and sellers make representations about matters such as financial statements, tax posture, customer and supplier relationships, compliance, and known liabilities. Disputes can arise when a buyer discovers that disclosures were incomplete or misleading and seeks recovery for resulting losses.
Even “standard” language can create room for disagreement. For example, a representation that financial statements “fairly present in all material respects” the company’s financial position “in accordance with GAAP” can trigger debate over what is material, which estimates are reasonable, and which judgments are acceptable.
- Define materiality (quantitative thresholds and/or deal-specific triggers).
- Document agreed upon accounting elections and known judgment areas concisely (e.g., reserves, revenue recognition, capitalization practices).
- Document applicable tax considerations.
- Present diligence findings in aligned areas of disclosure and comprehensive schedules so the agreement reflects the transaction reality, not a template.
R&W insurance is frequently used in deal transactions to streamline indemnity negotiations and shift certain recovery dynamics to an insurer (subject to retention, exclusions, and claims procedures). Even where insurance is in place, unclear definitions and broad agreement terms can still lead to friction and cost, just with different stakeholders.
The Throughline: Precision Plus Process
Most post-acquisition disputes trace back to the same issue: imprecise language that leads to subjective interpretations. Buyers and sellers can reduce disputes by addressing ambiguity during the drafting process. In addition to support from legal counsel, it is in the parties’ best interest to engage accounting and tax advisory professionals experienced in M&A deals who can assess whether the agreement terms align with diligence findings and are executable in practice and suggest revisions where needed.
Clarity around definitions is critical—but so is clarity around process: what information must be delivered, in what format, by when, and how disagreements will be evaluated and resolved.
For Buyers, Sellers, and Their Legal Practitioners
Legal practitioners play a pivotal role in preventing post-closing disputes by engaging accounting and tax advisory professionals experienced in M&A deals to help ensure agreements are comprehensive, objective, specific, and implementable. Diligence should not only identify risk, but it should also directly inform drafting, including disclosures, comprehensive schedules and calculations, and the dispute resolution framework.
If a dispute progresses to neutral determination, arbitration, or litigation, counsel’s impact remains significant: organizing the record, maintaining procedural discipline, and aligning the case strategy to the decision maker’s mandate, particularly when an independent accountant’s determination is final and binding under the agreement.
The risk of post-acquisition disputes is reduced when agreements are drafted without ambiguity. If you’re planning an acquisition, negotiating post-close protections, or already facing a working capital, earnout, or R&W issue, BDO can help you reduce exposure and move faster with deal ready accounting, tax, and dispute advisory support.
Connect with BDO’s M&A and Disputes professionals to pressure test agreement language, align diligence to contract terms, and implement a post-close process designed to prevent disputes, or resolve them efficiently when they arise.