Grant Thornton survey: Half of M&A deals experience accounting disputes
The survey - which included nearly 200 U.S.-based M&A professionals - also found that 66% of the survey respondents felt the COVID-19 pandemic has increased the likelihood of disputes. Moreover, the survey revealed that respondents identified two common reasons that deals unraveled after they closed: 51% cited earn-out disputes and 46% blamed working capital issues.
"The sudden drop-off in the economy has created a perfect storm, where buyers may dispute historical judgments and estimates used by sellers," said Charles Blank, Forensic Advisory Services managing director at Grant Thornton. "Further, earn-outs and working capital will also become more prone to disputes if the performance of past acquisitions significantly declines."
Survey respondents highlighted several key factors that not only increase the risk of an initial dispute, but increase the time required to reach a resolution.
Managing disputes for better deal-making
With the current economic conditions and unprecedented business climate, it is more important than ever to proactively mitigate these risks and plan for the future. Grant Thornton developed some best practices that can help dealmakers guard against disputes.
"Effective deal due diligence is beneficial to understand the risks at stake, especially during turbulent times," summed up Holly Johnson, Forensic Advisory Services senior manager at Grant Thornton. "The more detailed and process-driven you are, and the less judgment is present in your policies and procedures, the better your chances of deal success."
For additional findings from Grant Thornton's M&A disputes survey or to learn more about dispute prevention guidelines and best practices in arbitration, visit: www.grantthornton.com/disputesurvey.
About Grant Thornton LLP
"Grant Thornton" refers to Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd (GTIL). GTIL and the member firms are not a worldwide partnership. Services are delivered by the member firms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another's acts or omissions. Please see grantthornton.com for further details.
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