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Purchase price adjustments sometimes require legal determinations rather than accounting analysis. For example, the issue might be whether the target company’s tax practices were in compliance with applicable law, whether a threat of litigation is sufficient to mandate reserves, or whether the company accurately maintained its capitalization tables. When these issues come up in purchase price adjustments, it can create an issue if the merger agreement says that they are to be resolved by accountants in accounting arbitration who are likely not well suited to conduct the underlying legal analysis on which the accounting determination depends.
Possible solutions for resolving issues such as these are to (i) keep them out of purchase price adjustments and mandate that any issue that requires a legal determination must be handled through the indemnification remedies or (ii) consider alternatives to accounting arbitration for resolution of purchase price adjustments when determining the proper outcome is not something accountants would likely not have the expertise to do well.
Paul Koenig
Chief Executive Officer tel:303-957-2850
Paul is the chief executive officer and co-founder of SRS Acquiom.
Before co-founding SRS Acquiom, Paul was one of the founding partners of Koenig & Oelsner, a Denver-based corporate and business law firm with a strong practice in mergers and acquisitions, securities, and financing transactions. Prior to that, he was an attorney in the Chicago office of Latham & Watkins, and in the Colorado office of Cooley LLP.
Paul has authored numerous articles and is a frequent speaker at industry events. He received his BBA in finance from the University of Iowa and graduated from Northwestern University School of Law.