Page 13 - Dittmar Quarterly Q1 2019

The most common causes of disputes
According to the study, the most common sources of conflict in M&A-related disputes are the purchase price mechanism, the potential additional purchase price and breach of the seller’s warranties. More careful drafting of purchase agreements, more thorough due diligence and a successful post- acquisition integration of the target company were identified as the most significant means of avoiding disputes.
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A settlement is worth investing in
According to the study, during the past five years 10 % of all M&A transactions have led to disputes. Approximately half of the respondents have used multi-tier dispute resolution clauses in M&A contracts. Such clauses require the parties to satisfy certain steps in an attempt to amicably resolve the dispute prior to commencing arbitration or other legal proceedings. Respondents are increasingly willing to use mediation and when they do, informal mediation is the preferred option. The lack of confidence in general courts of law as the forum for resolving M&A disputes has remains low.
In arbitral proceedings, the Finland Arbitration Institute is by far the most popular choice of arbitral institution among the respondents of the survey.
As many as 78 % of the respondents preferred to
incorporate the Finland Arbitration Institute’s arbitration clause into their M&A contracts, while only 13 % would choose the ICC Arbitration clause and only 7 % would opt for the Stockholm Chamber of Commerce arbitration clause.
W&I insurance
The number of users of W&I insurance has trippled since 2015. 2/5 of the respondents have now used W&I insurance. W&I insurance has typically been taken out at the request of the seller. More than half of the users are happy or very happy with the W&I insurances taken out. The next trend in M&A- related insurances is expected to be insurances covering known risks, such as tax risks, IPR-risks, litigations and environmental risks.
-120 Years of Thinking Ahead-
One in ten M&A
transactions leads to a dispute.
Purchase price mechanism
Warranty breaches
Potential additional purchase price (such as earn-out)
Breach of non-compete clause
Scope of specific indemnity
Ancillary agreements entered into in connection with the transaction
33 % 33 %
19 %
7 % 4 %
4%
0 5 10 15 20 25 30 35