Protecting Your Business

What are some legal challenges with mergers and acquisitions?

On Behalf of | May 7, 2024 | Business Litigation |

Mergers and acquisitions are complex transactions that involve the consolidation of companies or assets. These deals can lead to significant business growth.

However, they often bring about a range of legal challenges that parties must navigate carefully.

Due diligence issues

One of the first steps in any merger or acquisition is due diligence. This process involves a thorough review of the target company’s business. It aims to verify the accuracy of presented information and identify any potential legal or financial issues. Disputes can arise if the acquiring company discovers that the target has misrepresented its financial health or failed to disclose important information such as liabilities or pending lawsuits.

Valuation disputes

Valuing a company is a central element of M&A deals, but it is also subjective and complex. Disagreements over the valuation of assets, especially intangible ones like intellectual property or goodwill, can lead to disputes. Both parties may have differing opinions on the methods used to value these assets, which can affect the price paid or received during the transaction.

Breach of contract

Contracts in M&A deals are detailed and often include warranties and representations made by both the buyer and the seller. If one party feels that the other has not adhered to these agreements, it may claim a breach of contract. Such disputes can involve aspects like non-disclosure agreements, purchase price adjustments or the fulfillment of post-closing obligations.

Employment-related issues

Mergers and acquisitions can significantly affect a company’s workforce. Disputes may arise regarding the merging of different corporate cultures or conflicts over employment terms. Changes in employee benefits, layoffs or changes in leadership can create friction and legal challenges between the merging entities.

Antitrust concerns

In some cases, M&A activities may raise antitrust issues, especially if the merged entities will command a significant share of the market. Regulatory bodies may challenge a merger that appears to limit competition. Companies must navigate these legal waters carefully to avoid disputes with regulatory authorities.

Understanding and preparing for these potential disputes is necessary for any company considering a merger or acquisition. By anticipating these issues, companies can devise strategies to mitigate risks and ensure that the transaction progresses as smoothly as possible.