Purchase Price Adjustment Disputes: Drafters Beware

April 06, 2017

It is common practice for purchase agreements in private company M&A transactions to contain one set of rules to determine and resolve disputes regarding a post-closing purchase price adjustment and a separate, often vastly different, regime for dealing with breaches of representations and warranties. The recent Delaware Court of Chancery decision in Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company LLC and WSW Acquisition Co., LLC (Del. Ch. December 5, 2016) highlights the need to carefully consider how these separate regimes interrelate when it comes to overlapping subject matter, particularly GAAP compliance, to avoid unintended consequences. In the Westinghouse case, the seller thought it had eliminated its exposure for non-compliance with GAAP by having the GAAP financial statement representation expire at the closing. That effort failed, however, because the court ruled that the purchase price net working capital adjustment provision allowed the buyer to make adjustments to the purchase price to correct for any non-compliance with GAAP.

Read "Purchase Price Adjustment Disputes: Drafters Beware."