Post-M&A Disputes Planning for Economic Uncertainty

In today’s complex and uncertain global economy—marked by volatility, geopolitical unrest, and the impact of widespread tariffs—the mergers and acquisitions (M&A) landscape can be a moving target. Financial buyers and corporations globally have slowed their deal activity. Notwithstanding a new incoming US administration, at the start of 2025, many dealmakers, economists, and investment banks were optimistic for a stronger deal market—citing economic resilience, improved financing conditions, and private equity's desire to monetize investments. However, recent data paints a more cautious picture. 

 

According to Dealogic, global M&A deal volume fell to just over 2,300 transactions in April 2025, the lowest monthly total since February 2005. This includes only 555 deals in the US—the world’s largest dealmaking market—marking the fewest in a month since May 2009. April’s total represents a 34% decline from the historical monthly average of approximately 3,500 deals. This slowdown reflects heightened caution among buyers wary of the potential impacts of tariffs, disruptions to supply chains and increased operating costs, more difficult credit conditions, and the reliability of projections. 

 

Despite these uncertain headwinds, deals continue to be consummated, albeit at a lower volume. History shows, however, that such periods beget increased post-transaction dispute activity. Why? Transaction parties often attempt to revisit the purchase price via balance sheet/net working capital and EBITDA/earn-out metric adjustments (the so-called “second bite at the apple”). 

Purchase price adjustment and earnout provisions delay the final determination of total transaction consideration until after the transaction has closed and, in the case of earnouts, sometimes many years after the transaction has closed. Therefore, they are among the most frequently contested deal components.   

 

Purchase price adjustment provisions provide a means for buyers and sellers to reconcile differences in a specified balance sheet metric—such as net working capital, inventory, or net assets—between a target amount (aka the “peg”) and the actual closing amounts. These adjustments serve as financial true-ups to ensure appropriate valuation, generally at the transaction’s closing, of assets and liabilities subject to frequent fluctuation. 

 

Financial earnout provisions allow the seller to receive an additional purchase price from post-transaction activity if certain agreed targets are achieved, generally measured in revenues or EBITDA. Such mechanisms are commonly used to bridge valuation gaps and provide buyers with a level of comfort in the representations and projections asserted by seller in the deal-negotiation process. 

 

According to SRS Acquiom, which analyzed 2,200-plus private acquisitions between 2019 and 2024, more than 90% of deals included a purchase price adjustment provision, and 85% of those used working capital as the key metric. Further, depending upon the year, between one-fifth and one-third of non-life-sciences transactions have included at least one earnout provision. Of those, more than two-thirds address multiple periods. 

 

Transaction parties are well-advised to take measures to prevent (or minimize) the uncertainty from future purchase price adjustment and earnout disputes. This is especially true given the aforementioned economic uncertainty and private-equity dealmakers have become more willing to advance such disputes to litigation and/or arbitration. 

Deal professionals and accounting experts are routinely retained to assist a party with testifying and non-testifying consulting expert support. They are often jointly retained by both parties to resolve disagreements as an accounting arbitrator or independent accountant. These roles provide insight regarding considerations that could be employed to reduce the likelihood of dispute and uncertainty. The following are key recommendations. 

 

Engage post-transaction dispute experts early – Parties often want a quick deal and to focus due diligence on financial, operational, and strategic issues. As such, key closing provisions (e.g., purchase price adjustment, earnout, dispute resolution language) might be given insufficient attention. The result can be contract terms that are ambiguous and even conflicting. Having an expert help identify inconsistencies, gray areas, and pitfalls can be an invaluable investment in avoiding future disputes or resolution ambiguity. 

 

Consider market conditions – Recent market disruptions, such as the tariff and trade environment, demonstrate the importance of proactively addressing unforeseen external risks in M&A contracts. Economic shocks can significantly affect key balance sheet metrics, such as inventory and payables, post-execution valuations, and earnout calculations. Prior to executing the deal, parties should incorporate flexibility into contracts, such as language that allows for deviations from standard EBITDA or inventory calculations “in accordance with Generally Accepted Accounting Principles (GAAP) and consistent with past practices,” particularly for when unexpected market changes occur. 

 

Scrutinize and reconsider Material Adverse Effect and Material Adverse Change provisions, historically used in deal agreements, in light of the current economic landscape. This should serve as an added layer of protection to deal participants by considering the current fluctuating tariff situation, geopolitical landscape, and other factors. 

 

Use clear and specific contract language – Vague or boilerplate terms are a common cause of post-closing disputes. Every clause, especially those related to purchase price adjustments and earnouts, should be written with clarity and specificity. For example, instead of vaguely stating that the buyer “should operate the business in a manner consistent with past practice during the earnout period,” the agreement should outline permissible actions, operational expectations, and any limitations during the earnout period. Further, generic references to GAAP should be avoided. The agreement should state whether the seller’s historical accounting practices (or the buyer’s standards) should apply and further instruct the parties as to the principles to be used if those cited as prevailing are found to be non-compliant with GAAP.   

 

Clearly define the accountant’s role – Deal agreements frequently provide that purchase price adjustment and earnout disputes be referred to an independent accounting professional for resolution rather than being legally adjudicated. The parties should employ specific language regarding such matters as the method of selection of that accountant. This includes the procedures the accountant is to employ, such as number of written submissions and whether interrogatories and/or hearings will be used; the accountant’s role in resolving issues of scope and document/data production; and the format of the accountant’s final determination letter. 

 

Proactive planning and contract precision are essential to mitigating risk in M&A transactions, which is even more necessary in the current volatile environment. By engaging experienced professionals early and incorporating clear language into agreements, dealmakers can better manage uncertainty and reduce the likelihood of costly post-closing disputes.