Heightened geopolitical tensions and increasing regulatory scrutiny are extending transaction timelines and increasing execution risk. As a result, valuation gaps between transaction parties frequently emerge over the course of a deal and must be bridged as effectively as possible. To address these differences, parties in M&A transactions are increasingly relying on earn-out structures and other deferred purchase price mechanisms. However, this also shifts key commercial issues into the post-closing period, where the interests of buyers and sellers often diverge.
In this environment, the importance of proactively managing post-M&A dynamics is greater than ever. Thoughtful drafting of the sale and purchase agreement (SPA) and clear alignment can significantly reduce the risk of costly and time-consuming disputes, even in complex settings such as completion accounts mechanisms, where the final purchase price is determined only after ownership has been transferred.
While completion accounts typically offer greater buyer protection, a “locked box” mechanism – where the final purchase price is agreed at signing based on historical financials – can provide greater certainty and streamline the post-closing phase. This is supported by our latest experience at Accuracy: Less than 20% of post-M&A disputes we have advised on involved a locked-box structure. However, locked-box mechanisms may result in purchase prices that do not reflect value reductions of businesses that took place between the locked box date and closing, which is why many buyers continue to prefer completion accounts.
At Accuracy, our cross-functional teams combine their expertise in transactions and dispute resolution to support clients throughout the full M&A lifecycle. In this article, we explore the most common causes of post-M&A disputes and outline practical steps to avoid them to safeguard the purchase price in a transaction.
Sharpening SPA terms: Ambiguity is your enemy
Post-M&A disputes frequently arise from imprecise provisions in the SPA, which leave room for interpretation. This is particularly acute in transactions involving completion accounts, where unclear hierarchies of applicable accounting principles can become a central source of contention. In a recent arbitration case in which Accuracy acted as an independent accounting expert, the SPA did not clearly establish whether IFRS, i.e., the generally accepted accounting principles (GAAP) agreed upon by the parties, should take precedence over the target’s historical accounting practices. Therefore, the seller prepared completion accounts in line with historical practices, which were in part inconsistent with IFRS. The buyer subsequently objected to the completion accounts, arguing that the parties could not have intended to perpetuate historical inconsistencies.
Similar risks arise when the classification of balance sheet items is insufficiently defined. Whether an item is characterized as debt, cash, or working capital can have a direct and material impact on the purchase price, and even minor ambiguities can trigger significant disagreements.
To mitigate such risks, SPAs should establish clear accounting hierarchies, detailed purchase price mechanisms, and limited scope for discretion. The inclusion of illustrative examples such as account mappings or price calculation guidance can materially reduce interpretational uncertainty. Close coordination between legal and financial advisers is essential to ensure technical accuracy and internal consistency.
Due diligence as the first line of defense
The likelihood of disputes increases significantly where due diligence findings are not fully reflected in the SPA. Identifying risks is only the starting point; ensuring that they are appropriately addressed in the contractual framework is what ultimately protects the parties.
For example, if financial due diligence identifies risks around the recoverability of receivables, but the SPA provides no corresponding protection, the buyer may have limited recourse in case of impairment. Likewise, failure to incorporate due diligence insights into key reference values, such as EBITDA, net debt, or working capital, can result in mispricing and subsequent disputes.
Therefore, it is critical that financial and other advisers contribute actively to SPA drafting, ensuring that all identified risks are addressed through tailored pricing mechanisms, warranties, or indemnities. Where multiple diligence streams operate in parallel, effective communication and alignment are essential to prevent information loss across disciplines, ensuring that legal, tax, and financial findings are jointly addressed in the transaction documentation.
Financial integrity: Addressing risks early
Deficiencies in financial information remain a common source of post-M&A disputes. Such issues may relate to data provided during due diligence or to information used in the preparation of completion accounts. Such deficiencies may be inadvertent, particularly where sellers lack robust internal controls, have limited experience in preparing completion accounts, or rely on unaudited financial information. Nonetheless, they can have significant financial consequences.
More concerning are situations in which sellers adopt aggressive accounting to maximize valuation, or in extreme cases, manipulate financial records, or conceal liabilities. These scenarios not only increase dispute risk but also complicate resolution.
Therefore, buyers should identify risk areas at an early stage, particularly where price mechanisms are sensitive to short-term volatility or potential manipulation. Residual risks should be mitigated through robust and specific warranties and indemnities. In this context, seller warranties relating to the accuracy, completeness, and preparation of financial information play a critical role, especially where financial statements are unaudited or prepared under less rigorous controls. These protections should be supported by clear and detailed guidance on financial reporting and the preparation of completion accounts. Well-designed accounting provisions can substantially reduce the scope for disagreement.
Navigating complexity with simplicity
SPAs frequently include complex, contingent pricing mechanisms, most notably earnout provisions whereby the seller receives additional consideration if the target meets certain performance criteria after closing. While these mechanisms can help bridge valuation gaps and align interests, their inherent complexity often increases the risk of disputes, particularly where they interact poorly with other SPA provisions.
Despite the financial significance of earnouts, SPAs often provide comparatively limited guidance on their calculation. At the same time, post-closing developments such as business integration, synergies, and buyer-implemented changes can materially affect the underlying performance metrics.
As a result, when structuring earn-outs, parties should anticipate these dynamics and address them explicitly in the SPA. Where complexity cannot be avoided, clarity is paramount: Precise definitions of key performance indicators, consistent accounting treatment, and the inclusion of illustrative examples can significantly reduce interpretational risk. In many cases, however, a simpler and more transparent structure will provide more robust protection for both parties.
Transaction dynamics must not interfere with risk perception
Transaction-specific pressures can materially influence how risks are perceived and addressed. Time constraints, shareholder expectations, or competitive auction processes may encourage buyers to truncate due diligence or accept poorly drafted SPAs.
At the same time, the strategic importance of a transaction may reduce receptiveness to negative due-diligence findings, particularly where these challenge the underlying investment case. In some situations, pricing is even driven by factors only indirectly linked to intrinsic value, such as benchmark multiples or competitive auction dynamics. Limited communication between buyers and their advisers can further impair the understanding of key value drivers and associated risks.
While such pressures are inherent to many transactions, their impact can be mitigated. Early scenario analysis can help parties assess the financial implications of different outcomes and determine whether identified risks are acceptable. Maintaining discipline in both analysis and negotiation is essential to preserve value and minimize the likelihood of disputes.
Concluding thoughts
In M&A transactions, both buyers and sellers seek to maximize value, often under significant time pressure and in increasingly complex deal environments. Against this backdrop, disputes are not the exception but a recurring feature, particularly where completion accounts or deferred compensation mechanisms shift key commercial questions into the post-closing phase.
While locked box structures can reduce the scope for disagreement, they do not eliminate the risk of value leakage between signing and closing, therefore increasing reliance on carefully calibrated warranties and indemnities.
Ultimately, the most effective protection lies in the early engagement of experienced financial and legal advisers, clear and prescriptive SPA drafting and due diligence that is not only thorough but properly translated into contractual protections. A focus on clarity, simplicity, and transparency of contractual provisions can materially reduce the likelihood of post-M&A disputes and safeguard transaction value for all parties.
