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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Serie: Wiley Finance Editions
- Sprache: Englisch
Navigate M&A accounting arbitrations with insider perspective M&A Disputes takes you inside the dispute resolution process to help you put together the many "moving parts" necessary to obtain a successful outcome. With deep insight from experts in the field--including valuable advice from the arbitrator's perspective--this book guides you through the entire process to explore the variables at work. The high volume of M&A transactions makes post-closing price adjustment provisions and accounting arbitrations a critical part of doing business. Yet, the field is opaque to non-practitioners and important issues can be easily misunderstood without specific knowledge and experience. A resulting award can make or break a transaction; an intimate understanding of the process's inner working can help you plan your position to the greatest advantage. This book explores the many factors that that contribute to a successful resolution across the entire transaction life cycle from contract negotiation through the dispute phase including due diligence, determination of the target net working capital, conception and closing of the purchase agreement, post-closing negotiation and dispute resolution, the impact of accounting practices, guidance, and documentation as well as relevant auditing concepts, and various facts and circumstances surrounding the target business and the transaction that need to be considered. M&A volume remains high and continues to result in large numbers of current and future post-closing M&A disputes. Clients rely on their attorneys and advisers to guide them through the process and counsel them toward a positive outcome. Those professionals will find that M&A accounting arbitrations carry a range of distinctions that require a specialized knowledge base to navigate correctly. This book provides real-world guidance from experts in the field, with invaluable insight for every stage of the process. * Walk through the entire dispute resolution process from arbitrator selection through final award * Understand how M&A agreement provisions impact the awarded amount as well as the options available to limit the scope of potential disputes and the "gaming" of the post-closing process by the counterparty * Understand the nature of accounting estimates and guidance, their interaction with accounting arbitrations, and how to synthesize facts, circumstances, and GAAP into a persuasive argument to present to the accounting arbitrator * Get situation-specific advice for different types of transactions * Learn practitioner "dos" and "don'ts" from the arbitrator's perspective M&A Disputes provides transaction parties and their representatives an inside view at the transaction and commonly disputed items through the eyes of the arbitrator to provide them with uniquely valuable insight. In addition to being an invaluable tool for practitioners appearing before an accounting arbitrator, M&A Disputes also provides advice to would-be and experienced arbitrators alike to successfully resolve disputes that can be significant and complex.
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Table of Contents
Cover
Title Page
Preface
Acknowledgments
About the Authors
PART One: The M&A Dispute Framework
CHAPTER 1: Introduction to M&A Disputes
THE TRANSACTION LIFECYCLE
CATEGORIES OF PURCHASE PRICE ADJUSTMENT PROVISIONS
ACCOUNTING ARBITRATIONS VERSUS EXPERT DETERMINATIONS
OVERVIEW OF THE BOOK
NOTE
CHAPTER 2: The Post‐Closing Adjustment and Dispute Process
FROM CLOSING TO DISPUTE
THE DISPUTE RESOLUTION PROCESS
CHAPTER 3: Post‐Closing Net Working Capital Adjustments
NET WORKING CAPITAL ESTIMATION AND ADJUSTMENT
AN APPROACH TO DEFINING AND QUANTIFYING NET WORKING CAPITAL
THE DEMARCATION AND QUANTIFICATION OF NET WORKING CAPITAL
NOTES
PART Two: Core Concepts and Issues
CHAPTER 4: The Nature of GAAP
BACKGROUND OF GAAP
GAAP IS NOT NECESSARILY NARROWLY PRESCRIPTIVE
GAAP IS NOT A FREE‐FOR‐ALL
GAAP BY ITSELF IS TOO BROAD FOR CLOSING DATE ACCOUNTING IN MANY SITUATIONS
NOTES
CHAPTER 5: Past Practices in Accordance with GAAP
PAST PRACTICES IN ACCORDANCE WITH GAAP
DOES NOT NECESSARILY NARROW DOWN THE APPLICABLE ACCOUNTING TO A SINGLE POINT ESTIMATE FOR ALL ACCOUNTS UNDER ALL CIRCUMSTANCES
COMPLICATIONS OF UTILIZING PAST PRACTICES
PAST PRACTICES WOULD VIOLATE GAAP
CONSEQUENCES OF THE APPLICATION OF PAST PRACTICES BEING IN CONTRAVENTION OF GAAP
PROCEDURAL MITIGATION OF MULTIPLE POTENTIAL OUTCOMES
NOTES
CHAPTER 6: Target Net Working Capital
APPROACHES TO DETERMINING THE TARGET NET WORKING CAPITAL
CONSIDERATIONS IN DETERMINING TARGET NET WORKING CAPITAL
CONSEQUENCES OF DISCREPANCIES
CHAPTER 7: Transaction‐Specific Adjustments
POTENTIAL CANDIDATES FOR SPECIAL TREATMENT
CONSIDERATIONS IN IMPLEMENTING CUSTOM PROVISIONS
CHAPTER 8: Audited Financial Statements and Auditing Concepts
THE AUDIT OF FINANCIAL STATEMENTS
RELEVANCE OF AN AUDIT AND AUDITED FINANCIAL STATEMENTS IN AN ACCOUNTING ARBITRATION
LIMITATIONS ON THE RELEVANCE OF A FINANCIAL STATEMENT AUDIT IN AN ACCOUNTING ARBITRATION
THE CONCEPT OF PROFESSIONAL SKEPTICISM
NOTES
CHAPTER 9: Subsequent Events, New Positions, and New Information
SUBSEQUENT EVENTS
PROCEDURAL DEADLINES FOR NEW POSITIONS AND NEW INFORMATION
NOTES
PART Three: The Accounting Arbitration
CHAPTER 10: Mitigation of Post‐Closing Purchase Price Disputes
DUE DILIGENCE
DOCUMENTATION OF PAST ACCOUNTING PRACTICES IS CRITICAL
THE PRE‐CLOSING AND POST‐CLOSING TEAMS
NEGOTIATION OF DISPUTED ITEMS PRIOR TO THE ACCOUNTING ARBITRATION
CHAPTER 11: Selection and Retention of an Accounting Arbitrator
TERMS OF THE PURCHASE AGREEMENT
CONSIDERATION OF THE QUALIFICATIONS OF THE ACCOUNTING ARBITRATOR
ENGAGEMENT OF THE ACCOUNTING ARBITRATOR
CHAPTER 12: The Parties' Initial Submissions
INTRODUCTION TO THE INITIAL SUBMISSIONS
BACKGROUND OF THE TRANSACTION AND THE DISPUTE
UNIQUE ACCOUNTING OR INDUSTRY CONSIDERATIONS
DISCUSSION OF INDIVIDUAL DISPUTED ITEMS
SUPPORTING DOCUMENTATION
REFERENCES TO AUTHORITATIVE GUIDANCE
GIVE THE ARBITRATOR OPTIONS
CONCLUSION
NOTE
CHAPTER 13: Further Submissions, Proceedings, and Considerations
REBUTTAL SUBMISSIONS
EXPERT REPORTS AND AFFIDAVITS
INTERROGATORIES AND DOCUMENT REQUESTS
HEARINGS
CHAPTER 14: The Arbitration Award
PROFESSIONAL STANDARDS
APPLICABLE AGREEMENTS
CONSIDERATION OF SUBMITTED INFORMATION
INDEPENDENCE AND IMPARTIALITY
RESOLVE ALL DISPUTED ITEMS
THE WEIGHT GIVEN TO EVIDENCE PROVIDED
ALLOCATION OF THE FEES AND EXPENSES OF THE ACCOUNTING ARBITRATOR
TYPES OF ARBITRATION AWARDS
NOTE
PART Four: The Disputed Items
CHAPTER 15: Overview of Disputed Items
NET WORKING CAPITAL UNDER GAAP
COMMON DRIVERS OF DISPUTED ITEMS
THE IMPACT OF OTHER CIRCUMSTANCES
MISCELLANEOUS DISPUTED ITEMS
NOTES
CHAPTER 16: Inventory
GAAP GUIDANCE RELATED TO INVENTORY
BUYERS AND SELLERS CAN HAVE DIFFERING VIEWS REGARDING THE VALUE OF INVENTORY
DISPUTED ITEMS RELATED TO INVENTORY
PRESENTING AND RESOLVING INVENTORY‐RELATED DISPUTED ITEMS IN AN ACCOUNTING ARBITRATION
RESOLVING INVENTORY‐RELATED DISPUTED ITEMS
NOTES
CHAPTER 17: Accounts Receivable
GAAP GUIDANCE RELATED TO ACCOUNTS RECEIVABLE
BUYER'S AND SELLER'S DIFFERING VIEWS REGARDING COLLECTABILITY
ACCOUNTS RECEIVABLE DISPUTED ITEMS
PRESENTING AND RESOLVING NET ACCOUNTS RECEIVABLE DISPUTED ITEMS IN AN ACCOUNTING ARBITRATION
NOTES
CHAPTER 18: Contingent Liabilities
THE POTENTIAL IMPACT OF SUBSEQUENT EVENTS ON CONTINGENCIES
LITIGATION ACCRUALS
WARRANTY ACCRUALS
CONTINGENT TAX EXPOSURE
POTENTIAL MITIGATION OF CERTAIN CONTINGENT LIABILITIES
NOTES
CHAPTER 19: Revenue Recognition and Expense Accruals
REVENUE RECOGNITION
VACATION AND OTHER PAYROLL ACCRUALS
BONUS ACCRUALS
TAX ACCRUALS
PREPAID EXPENSES
PART Five: Other Topics
CHAPTER 20: Governing Agreements and Contractual Choices
PAST PRACTICES IN ACCORDANCE WITH GAAP
TRANSACTION‐SPECIFIC TREATMENT
PROCEDURAL CHOICES
CHAPTER 21: Interaction with Indemnification Provisions
INDEMNIFICATION PROVISIONS
REPRESENTATIONS AND WARRANTIES
THE NET WORKING CAPITAL ADJUSTMENT PROCESS CAN OVERLAP WITH INDEMNIFICATION PROVISIONS
THE COMBINATION OF NET WORKING CAPITAL AND INDEMNIFICATION PROVISIONS CAN LEAD TO A WINDFALL
EXCLUDING INDEMNIFIABLE ITEMS FROM THE NET WORKING CAPITAL CALCULATION
NOTE
CHAPTER 22: Other Mechanisms, Earn‐Outs, and Locked Boxes
PRE‐CLOSING EBIT/EBITDA ADJUSTMENTS AND DISPUTES
EARN‐OUT ADJUSTMENTS AND DISPUTES
ADJUSTMENT MECHANISMS RELATED TO CAPITAL EXPENDITURES
THE LOCKED BOX: AN ALTERNATIVE TO POST‐CLOSING ADJUSTMENTS?
TRANSACTION FRAUD
CHAPTER 23: International Considerations
U.S. GAAP, IFRS, AND LOCAL GAAP
DIFFERENCES IN LEGAL SYSTEMS
OTHER CONSIDERATIONS
NOTE
Index
End User License Agreement
Guide
Cover
Table of Contents
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M&A Disputes
A Professional Guide to Accounting Arbitrations
A. VINCENT BIEMANSGERALD M. HANSEN
Copyright © 2017 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
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Library of Congress Cataloging-in-Publication Data:
Names: Biemans, A. Vincent, 1977- author. | Hansen, Gerald M., 1967- author.
Title: M & A disputes : a professional guide to accounting arbitrations / A. Vincent Biemans, Gerald M. Hansen.
Other titles: Mergers and acquisitions disputes
Description: Hoboken, New Jersey : John Wiley & Sons, 2017. | Series: Wiley finance series | Includes index. |
Identifiers: LCCN 2017009404 (print) | LCCN 2017014047 (ebook) | ISBN 9781119331933 (pdf) | ISBN 9781119331940 (epub) | ISBN 9781119331919 (cloth)
Subjects: LCSH: Consolidation and merger of corporations—Accounting. | Arbitration (Administrative law)
Classification: LCC HG4028.M4 (ebook) | LCC HG4028.M4 .B54 2017 (print) | DDC 657/.96—dc23
LC record available at https://lccn.loc.gov/2017009404
Cover Design: Wiley
Cover Images: © maxuser/Shutterstock
The authors would like to thank their wives, Lenora and Rachel, for their love and support and, importantly, their willingness to listen to excited work stories that have GAAP as the protagonist.
Preface
Why This Book
M&A transactions continue to be an important part of the corporate and investment landscape. Many of the purchase agreements governing those transactions contain post‐closing purchase price adjustment mechanisms. As a result, after‐the‐fact adjustments to the purchase price are commonplace.
In many instances, those adjustments remain limited to a series of uncontroversial accounting true‐ups. Purchase price adjustment mechanisms can, however, have a significant impact on the deal value to one or both parties. Sellers and buyers can be easily caught off guard by a sizeable proposed adjustment, problems with the company's accounting, or some perceived unreasonable position by the counterparty. In some instances, the impact on the ultimate purchase price paid by buyers and received by sellers can make or break transactions.
In the event of a dispute regarding a post‐closing purchase price adjustment, the purchase agreement commonly provides for the matter to be brought before an independent accountant for resolution. The parties rely on their attorneys and accountants to advise them on the successful resolution of those disputes before the accounting arbitrator. The resolution process, however, can be opaque for those unfamiliar with it and the area is under‐published. Moreover, there are distinguishing characteristics and unique considerations when comparing the field of M&A accounting arbitrations and the broader legal and accounting professions.
This book seeks to provide guidance to current and potential practitioners, whether in‐house or at a professional services firm, in resolving—and perhaps preventing—M&A disputes. It aims to provide the reader with an in‐depth walkthrough of the M&A dispute resolution process and practical guidance on achieving the best results for their clients from the diligence phase through final resolution. It also seeks to provide would‐be arbitrators with the handhelds needed to arrive at an informed and appropriate award. In addition to a discussion of the post‐closing purchase price dispute resolution process, this book also discusses steps the transaction parties can take to potentially mitigate the scope and severity of any post‐closing purchase price dispute.
The Organization of the Book
We have organized the book into five separate, but interrelated, parts.
The first part—The M&A Dispute Framework—provides an introduction to purchase price adjustment mechanisms, an overview of the post‐closing purchase price adjustment process, and the dispute resolution process before the accounting arbitrator. It also provides a more specific introduction to net working capital adjustment mechanisms. We selected net working capital adjustment mechanisms as the primary basis for discussion throughout most of this book for its prevalence in practice as well as the analogous applicability of many of the identified issues to other adjustment mechanisms. Notably, post‐closing adjustment mechanisms and the related dispute resolution process can be—and often are to some extent—customized as they are contractual in nature. Notwithstanding, the (net working capital) adjustment mechanisms and resolution procedures generally have more in common than they are different.
The second part—Core Concepts and Issues—discusses a variety of recurring elements across purchase price adjustments and disputes, including the nature of GAAP, the common requirement of consistency with historical accounting practices, the determination of target net working capital, transaction‐specific adjustments, selected audit topics, and subsequent events.
The third part—The Accounting Arbitration—provides a discussion of the dispute resolution process from the selection and retention of the accounting arbitrator through the arbitration award. Included are various considerations for the parties in preparing their submissions to the arbitrator as well as considerations for the arbitrator in reaching a determination on the items in dispute.
The fourth part—The Disputed Items—provides a detailed discussion of the drivers of many disputed items and several common categories of disputed items such as inventory, accounts receivable, and contingent liabilities. We discuss the genesis of such disputed items, important considerations when evaluating them, and how to present them to an accounting arbitrator. Although we cover some relevant accounting guidance, the emphasis is not on discussing all the ins‐and‐outs of GAAP. This book is not intended to be a technical accounting manual.
The final part—Other Topics—closes out the book with a discussion of several important topics, including the impact of contractual choices in the purchase agreement, the interaction between indemnification provisions and net working capital adjustment mechanisms, other purchase price adjustment mechanisms, and finally a brief discussion of international considerations.
Acknowledgments
We want to express our appreciation to our clients, their retained professionals, and our current and former colleagues, including, but certainly not limited to: Cees Hardeman, Dale Kitchens, Catherine Madrid, Hans van Sonderen, Rebecca Szelc, and Greg Wolski. We have learned a great deal from all of them throughout the years about both M&A transactions and disputes as well as a variety of other topics. We look forward to continuing to do so.
We want to thank Stuart McCrary for introducing us to Bill Falloon at Wiley. In addition, we want to thank Bill and everybody else at Wiley who worked on this book, including Shelley Flannery, Judy Howarth, Julie Kerr, and Caroline Maria Vincent.
Finally, we want to thank Amanda Nauert for her review of the manuscript and her improvements to the final product. We also greatly appreciate Teddy Tankersley's willingness to acts as a sounding board on a variety of topics.
About the Authors
A. Vincent Biemans is a Managing Director of Berkeley Research Group, LLC (“BRG”). He assists U.S. and European buyers and sellers with their M&A disputes both as a (party‐retained) advisor and as a (jointly retained) neutral accounting arbitrator. In addition to advising on M&A disputes, he also has significant experience developing complex damages and valuation assessments. He has been involved with engagements across a wide variety of industries and with economic interest covering a broad size spectrum (from less than $1 million to more than $10 billion).
Prior to joining BRG, Mr. Biemans served at several professional services firms, including a public multinational consultancy; a litigation, valuation, and financial advisory boutique; and a law firm. He started his career in an advisory practice in The Netherlands, where he advised clients ranging from startup ventures to publicly traded multinationals. He moved to the United States in early 2007.
Mr. Biemans is a Certified Public Accountant (CPA). He also holds the Chartered Financial Analyst (CFA), Accredited in Business Valuation (ABV), Certified Fraud Examiner (CFE), and Chartered Global Management Accountant (CGMA) designations. He holds advanced degrees in accountancy (postgraduate), economics (M.Sc.), and fiscal law (LL.M.). He is a member of various professional organizations.
Gerald (Jerry) Hansen is also a Managing Director of BRG. He is a CPA and forensic accountant with extensive experience across a variety of accounting, audit, and financial forensics services including M&A disputes (as an arbitrator and an expert), audit services, expert services, forensic due diligence, and fraud investigations. He has served at a Big 4 public accounting firm, a multinational consultancy, as well as global corporations in a career spanning over 25 years. Mr. Hansen previously served as the Southwest Region leader of Ernst & Young's Transaction Forensics practice, a specialty practice that focused on disputes, investigations, and forensic due diligence services that stem from contemplated and completed merger and acquisition transactions. He also has in‐house experience in software revenue recognition, mortgage banking, and insurance claims.
Mr. Hansen has provided dispute‐, forensic‐, and audit‐related services to clients in a wide range of industries including real estate, technology, energy, transportation, manufacturing, software, food services, publishing, automotive, healthcare, retail, staffing services, advertising, and financial services. He is a contributing author to The Litigation Services Handbook as well as the AICPA book The Guide to Investigating Business Fraud, in addition to other articles and presentations. He holds a BBA in Finance from Southern Methodist University and an MS in Accounting from the University of Virginia.
PART OneThe M&A Dispute Framework
CHAPTER 1Introduction to M&A Disputes
The purchase and sale of a business is typically an extensive process involving the identification of potential counterparties, due diligence, negotiation of a price and the purchase agreement, and finally the closing of the transaction. The closing represents the culmination of months of hard work often involving the assistance of a variety of advisors, including investment bankers, transaction counsel, and accountants.
The closing, however, does not necessarily mean that the transaction is fully completed and the purchase price is set. Many contracts governing the acquisition of a company or a business contain one or more mechanisms that allow for post‐closing adjustments to the purchase price based on a predetermined metric such as net working capital; earnings before interest, taxes, depreciation, and amortization (EBITDA); or some other metric. Such mechanisms and any resulting proposed purchase price adjustments may be resolved amicably between the parties. On the other hand, the adjustment process may lead to post‐closing disputes between the parties regarding the appropriate amount of the purchase price adjustment.
THE TRANSACTION LIFECYCLE
Purchase price adjustments are generally implemented after the closing of the transaction. The underlying mechanisms, however, are agreed upon prior to the closing. Moreover, the actual post‐closing adjustments may well find their genesis in pre‐closing events. Shown here is a sample representation of the lifecycle of a typical merger and acquisition transaction.
Sample Transaction Lifecycle with NWC Adjustment
M&A transactions can take a variety of forms and can follow varying timelines. Notwithstanding, the transaction lifecycle can generally be broken down into two major time periods—pre‐closing and post‐closing—with a variety of activities occurring in each period. For example, if the seller initiates the sales process, it may perform a variety of activities early on in the process to identify potential buyers and to get the company ready for sale. Once the field of potential buyers has narrowed, the parties can engage in further information exchanges, the buyer can perform its due diligence, and the parties can negotiate the purchase agreement.
The purchase agreement can incorporate both a negotiated purchase price amount (e.g., $1 billion) as well as a variety of adjustments that need to be made to arrive at the amount that is to ultimately be paid by the buyer. By means of example, the purchase price may be set on a debt free/cash free basis, that is, the agreed upon purchase price of $1 billion assumes the company has no debt and no cash. To arrive at the amount ultimately owed by the buyer, the company's debt and cash at closing have to be, respectively, deducted from and added to the negotiated purchase price amount (of $1 billion).
Transactions routinely provide for purchase price adjustments to be implemented post‐closing. For example, many purchase agreements contain a net working capital adjustment mechanism in order to have the final purchase price—i.e., after any post‐closing adjustments—reflect the actual amount of net working capital that was transferred with the business as of the closing date. Such adjustments are made post‐closing because, among other things, it is typically not possible to correctly quantify the net working capital on the closing date itself because of the time necessary to perform a typical “closing of the books.”
In such situations, the purchase agreement can provide for a preliminary closing statement based on which the preliminary purchase price is calculated and paid at closing. Subsequent to closing, the buyer is commonly contractually required to submit a proposed closing statement with updated net working capital amounts and any resulting purchase price adjustment. The seller may disagree with the buyer's calculations and send a—contractually provided for—objection notice. In the case of disagreement regarding any proposed adjustments, the purchase agreement commonly provides for negotiations between the parties, which are typically aided by the exchange of information between them.
In the event the parties cannot resolve the implementation of the purchase price adjustment between them, the purchase agreement may provide for the disputed items to be submitted to an accounting arbitrator for resolution. The dispute phase will typically at least involve the parties tendering initial and rebuttal submissions (with supporting documentation) to the accounting arbitrator for consideration and resolution of the dispute.
The focus of this book is on disputes arising after the closing of an M&A transaction and their resolution through accounting arbitration. Of course, the parties' pre‐closing activities can have an impact on the post‐closing purchase price adjustment process. For example, the level of sell‐side and buy‐side due diligence performed prior to closing can result in the preemptive identification and resolution of potential problem areas and, generally, increase the parties' knowledge of the accounting of the company being sold/acquired. Moreover, the negotiation of the purchase agreement and the precise language of its provisions can have a significant impact on the implementation of any purchase price adjustment mechanisms and the ultimate purchase price paid and received.
CATEGORIES OF PURCHASE PRICE ADJUSTMENT PROVISIONS
Contractual post‐closing purchase price adjustment mechanisms are found in purchase agreements that are structured as stock purchases as well as in those that are structured as asset purchases. Post‐closing purchase price adjustments can range from immaterial in the context of the transaction to large amounts that significantly impact the economics for the buyer and seller. There are three broad categories of potential contractual post‐closing adjustments to the purchase price:
Adjustments to the purchase price based on the financial position or performance of the target company as of or through the closing date
Adjustments to the purchase price based on the financial performance of the target company subsequent to the closing date
Adjustments to the purchase price based on the allocation of financial responsibility through representations, warranties, and indemnifications in the purchase agreement
Each of those categories of post‐closing adjustments can lead to disputes between the parties to the transaction. In addition to contractual purchase price adjustment disputes, there are also disputes related to the transaction and/or the purchase price that are based directly on the legal framework governing the transaction as opposed to the underlying contract. An example of a possible legal challenge that can lead to an adjustment to a share purchase price is a Delaware appraisal action. Another example of a legal challenge related to alleged under‐ or overpayment can be an action based on allegations of transaction fraud. Parties can also end up in dispute regarding a transaction that was never consummated based on, for example, allegations that one of the parties wrongfully failed to close. As this book focuses on accounting arbitrations, which generally find their basis in being preemptively agreed upon as a form of alternative dispute resolution, non‐contractual purchase price adjustment disputes are outside the scope of this book (although we discuss transaction fraud briefly in Chapter 22).
As it relates to contractual purchase price adjustments, agreements governing larger transactions generally contain at least a choice of law and forum selection clause. Many agreements, however, go much further and contain arbitration and/or expert determination clauses complete with prescribed procedures and an agreed‐upon timeline for dispute resolution. The agreed‐upon choices for alternative dispute resolution and the associated procedures can differ dependent on the nature of the potential dispute. In other words, one purchase agreement can contain multiple avenues for dispute resolution. For example, an agreement can simultaneously contain (i) an overall clause that prescribes New York law as the governing law and the federal court for the Southern District of New York as the venue of choice, (ii) an arbitration clause that arranges for an American Arbitration Association appointed arbitrator to decide any indemnification‐related disputes, and (iii) a clause that provides for an independent accountant to resolve any post‐closing net working capital disputes.
In general, the perceived benefits of alternative dispute resolution include the relative efficiency of the process, as it is often both faster and cheaper than traditional litigation, as well as the ability to tailor procedures and discovery. The limitations on discovery tend to be especially attractive to foreign transaction parties, for which the U.S. discovery process is often significantly more extensive than the obligations that are imposed by their home jurisdictions. In addition, especially in the event of a would‐be venue that is smaller and less used to foreign litigants, some foreign parties may fear that they would be at a disadvantage due to local biases. Of course, alternative dispute resolution also has downsides, including a commonly perceived tendency of arbitrators to arrive at split or compromise decisions as well as significant limitations on the ability to appeal an arbitration ruling. In the case of purchase price adjustment clauses, the efficiency benefits of alternative dispute resolution can be further increased by having, what are essentially, accounting disputes analyzed and decided by accountants.
The first category of purchase price adjustment disputes—adjustments based on the target company's financial position or performance as of or through the closing date—is as close as it gets to contract‐based pure accounting disputes. The underlying adjustment mechanisms include those based on the amounts of net working capital, debt (or net debt), and/or cash and cash equivalents that are transferred with the company at closing. The adjustment mechanisms can also incorporate performance measures such as EBITDA, earnings before interest and taxes (EBIT), or a variety of custom measures that cover a defined period prior to closing. For example, the contractual purchase price adjustment formula can incorporate the company's Adjusted EBITDA for the 12 months leading up to closing into the calculation of the ultimate purchase price. Not surprisingly, purchase agreements routinely arrange for purchase price disputes related to category 1 adjustment mechanisms to be brought before an independent accountant. Coates (2012)—in his analysis of a sample of M&A agreements for the period from 2007 through 2008—found that “83% of contracts containing price‐adjustment clauses also contained clauses mandating arbitration of disputes arising out of those price‐adjustment clauses.”1
Importantly, disputes related to category 1 adjustment mechanisms center on the quantification of an adjustment, if any. Generally, there is not the two‐step of actionable wrongful conduct and damages that is common in general civil litigation. Indeed, the need for some form of adjustment is generally not indicative of wrongful behavior. The existence of a dispute does not belie this; the parties may simply disagree on the appropriate accounting and need assistance in quantifying (part of) the adjustment.
Category 2 adjustments—adjustments based on post‐closing performance—are commonly referred to as earn‐out provisions and allow the seller of a company to retain some interest in the upside of the company's financial performance while protecting the buyer against paying upfront for expected performance that may never materialize. In a sense, disputes in the second category are often not about adjusting an estimated purchase price, but about quantifying what should be the ultimate purchase price based on post‐closing performance. Those disputes can encompass accounting issues and/or various legal and non‐accounting factual allegations about wrongful conduct. The accounting issues are frequently resolved by accounting arbitrators. The non‐accounting aspects of such disputes are typically brought before attorney arbitrators or judges, but can still involve accountants to provide consulting services and/or educate the trier of fact on the relevant accounting issues as a retained expert.
Disputes in the third category—adjustments based on representations, warranties, and indemnifications—are typically legal in nature. Moreover, although the related payments may be considered adjustments to the purchase price from an accounting perspective, the purchase agreements typically treat those items as payments between the parties and not explicitly as purchase price adjustments, unless for accounting or tax purposes. In our experience, it is highly uncommon for disputes in the third category to be brought before an independent accountant.
Notwithstanding, the findings of the independent accountant in relation to a dispute in the first category can indirectly impact the outcome of disputes in the second and third categories. By means of example, the accounting arbitrator can rule on the amount that should be included on the balance sheet as of the closing date for a partially performed contract, which would fall under the first category. That starting balance and the associated accounting can then have an impact on the amount of revenue that should be recognized in the year subsequent to closing. As a result, the accountant's ruling related to balance sheet work‐in‐progress accounting can impact the amount of the earn‐out owed to the seller for performance subsequent to closing. Similarly, by means of another example, the independent accountant could rule on the appropriate amount to be included on the balance sheet as a tax accrual. If the purchase agreement also contains a clause that arranges for indemnification of prior period taxes in excess of the applicable tax accrual, the ruling of the independent accountant in the context of a category 1 adjustment could very well impact a purchase price adjustment in relation to category 3.
As this book relates to accounting arbitrations as opposed to civil litigation, it focuses primarily on the conception, negotiation, and adjudication of the first category of post‐closing purchase price adjustments. The most prevalent adjustment mechanism in this category is for the amount of net working capital that exists on the target company's balance sheet as of the closing date. Post‐closing net working capital adjustments also form the bulk of post‐closing disputes that are brought before an accounting arbitrator.
Given their prevalence in practice as well as the analogous applicability of many of the identified issues to other adjustment mechanisms, the majority of this book will focus on net working capital–based adjustment mechanisms and disputes. Notwithstanding, we mention other purchase price adjustment mechanisms and disputes throughout this book where appropriate. We also specifically discuss certain other adjustment mechanisms, including EBITDA‐based adjustments and earn‐outs in Chapter 22.
ACCOUNTING ARBITRATIONS VERSUS EXPERT DETERMINATIONS
Post‐closing purchase price adjustment disputes before an independent accountant can take the formal form of an accounting arbitration or of an expert determination. There are a variety of legal consequences that may be associated with the selection of one over the other regarding, for example, the accountant's legal powers and the enforceability of the conclusion.
The parties may (or may not) preemptively select one formal approach over the other in the purchase agreement. The dispute resolution process before the independent accountant and the issues at play, however, are typically the same whether the parties opt for expert determination or arbitration.
Since for purposes of this book the terms are essentially interchangeable, we will refer to both arbitrations and expert determinations as accounting arbitrations or arbitrations throughout this book. Similarly, we will refer to the independent accountant as the accounting arbitrator or arbitrator whether he or she was retained to issue an arbitration award or to render an expert determination. The same is not uncommon in various articles and other publications on the topic of M&A disputes.
OVERVIEW OF THE BOOK
In this book, we will cover the various aspects of the accounting arbitration process as well as selected common arguments and issues. We will use the net working capital adjustment mechanism as the basis for most of our discussion.
First, we provide an overview of the dispute phase to briefly introduce the post‐closing dispute resolution process (Chapter 2) as well as an overview of post‐closing net working capital adjustments (Chapter 3). Those two chapters will provide the reader with foundational information to place the subsequent chapters in context.
We then address some of the core concepts and issues at the foundation of many post‐closing purchase price adjustments and disputes, including the nature of GAAP (Chapter 4), the concept of past practices in accordance with GAAP (Chapter 5), and several other important and commonly recurring items (Chapters 6–9).
After this, we discuss the post‐closing purchase price dispute process in more detail. We start off with opportunities for mitigation that are available to the parties prior to the dispute being brought before the accounting arbitrator (Chapter 10). We then discuss the entire dispute process from retention of the accounting arbitrator through the award (Chapters 11–14).
After discussing the process, we discuss common sources of adjustments, including some specific financial statement accounts (Chapters 15–19). We include technical accounting guidance as well as advice on the documentation and presentation of arguments to the accounting arbitrator.
Finally, we cover other relevant topics, including a discussion of purchase agreements and their relevant provisions (Chapter 20), the interaction of net working capital adjustments and indemnification provisions (Chapter 21), other adjustment mechanisms (Chapter 22), and selected international considerations (Chapter 23).
Overall, this book is meant to provide in‐depth professional guidance for practitioners. It cannot, however, exhaustively cover each possible variation. There are few absolute truths in a field for which the framework is predominantly set by contractual arrangements between sellers and buyers in combination with accounting guidance. In order to keep the book readable, we have attempted to avoid inserting “typically” or “generally” into every statement even when exceptions can exist. We urge the reader to carefully evaluate the facts, circumstances, and legal context of the individual cases with which he or she comes into contact. As we cover the various topics, we have attempted to illustrate important concepts with examples. Those examples are simplified to illustrate specific concepts, are fictitious, and are not meant to capture the full nuance of real‐world matters.
NOTE
1
.
See
John C. Coates IV, “Managing Disputes through Contract: Evidence from M&A,”
Harvard Business Law Review
, Vol. 2, 2012, p. 333.
CHAPTER 2The Post‐Closing Adjustment and Dispute Process
The previous chapter introduced the transaction lifecycle and briefly discussed how the activities in the pre‐closing phase can impact a purchase price adjustment dispute in the post‐closing phase. We now highlight the different elements of the post‐closing purchase price adjustment process in more detail to provide a framework for the rest of the book. Although we introduce the dispute resolution process in this chapter, we cover it much more extensively later in the book.
FROM CLOSING TO DISPUTE
The transaction has closed and the parties are in the honeymoon period. Nothing spoils this pleasant period like an accounting arbitration. How do the parties get from a mutually agreeable closing to a formal dispute? The answer—a disagreement regarding the need for, or the appropriate amount of, an adjustment to the purchase price.
The parties are due their respective bargained‐for items as documented in the purchase agreement. In many transactions, there is a purchase price adjustment mechanism that allows for upward or downward adjustments to the purchase price based on a specific metric. If the parties cannot agree on the purchase price adjustment, the purchase agreement commonly provides for an accounting arbitration process.
Following are the typical steps the parties go through from the closing of a transaction to the commencement of an accounting arbitration:
After the closing of the transaction, the buyer obtains control of the company and gains direct access to the company's books and records. The purchase agreement typically provides for a defined period of time for the buyer (e.g., 30 days) to prepare a proposed closing statement that contains, among other things, a proposed final amount of net working capital as of the closing date and any resulting adjustment to the purchase price.
After the buyer submits its proposed closing statement to the seller, the seller typically has a predetermined period of time (also, e.g., 30 days) to analyze the proposed closing statement and to assess whether the seller agrees or disagrees with one or more of the buyer's proposed adjustments. If the seller agrees with all of the proposed adjustments, the purchase price is updated and the transaction is finalized. If, after review and the exchange of information between the parties, the seller rejects all or part of the buyer's proposed adjustments, the seller submits a written response detailing any objections (commonly referred to as an “objection notice”).
If an objection notice is submitted, the parties enter a contractually agreed‐upon negotiation phase. In this phase a further exchange of information and negotiation takes place to attempt to resolve or narrow the adjustments that the seller objected to prior to entering the dispute phase.
Any remaining unresolved adjustments are then submitted to an accounting arbitrator for resolution in accordance with the relevant purchase agreement.
In the remainder of this chapter, we first discuss the common steps reflected in the previous summary in more detail. We then provide and discuss the common steps that are part of the dispute process.
The Proposed Closing Statement and Proposed Purchase Price Adjustment
For a transaction with a purchase price adjustment provision, the first step in the post‐closing process is the buyer's assessment of its acquisition and the preparation of a “proposed closing statement” or “closing balance sheet.” Most purchase agreements provide an agreed‐upon time period, often 30 to 90 days, for the buyer to prepare the proposed closing statement.
The proposed closing statement contains the adjusted net working capital as well as the impact of any adjustments on the purchase price. Specifically, the adjusted net working capital amount is compared to the (preliminary) amount of net working capital used as of the closing date. Any surplus or deficiency is used to calculate the proposed purchase price adjustment. By means of example, if the purchase price paid at closing was $100 million based on a preliminary net working capital amount of $20 million and the buyer's post‐closing calculation of net working capital shows $15 million, the buyer would propose a $5 million purchase price reduction.
The above is a simplistic summary of what can be a complicated process. Purchase agreements can vary in their definition of net working capital, its components, and the standard for quantifying it. By means of example, the purchase price can be calculated on a cash free/debt free basis. For some transactions, that can mean that the cash is retained by the seller and the company's debt is paid off at closing. For other transactions, that can mean that the purchase price is negotiated without giving consideration to cash and debt. As of the closing date, the cash that transfers with the company will have to be added to the purchase price and the debt, potentially including a variety of debt‐like items, will have to be deducted. In such instances, the purchase agreement will have to carve‐out cash and cash equivalents from the net working capital definition and set the boundaries between net working capital and debt, which could otherwise overlap. Purchase agreements can also provide for a host of other exclusions, additions, or limitations, which may or may not be GAAP compliant. Such transaction‐specific items can include a wide variety of items such as, for example, an agreed upon cap on warranty accruals or the contractual exclusion of certain inventory items from the net working capital calculation.
Finally, there are also purchase agreements that provide for the seller to prepare the proposed closing statement. This is much less common because for most transactions the seller already prepares the net working capital or other metric that is used to derive the purchase price paid at closing. Moreover, after the closing, the buyer has control of the company and, in many instances, direct access to its books and records.
Accepting or Objecting to Post‐Closing Purchase Price Adjustments
Upon receiving the buyer‐prepared proposed closing statement, including any proposed purchase price adjustment, the seller commonly has a contractually agreed‐upon opportunity to review and either accept or object to the buyer's calculations. Purchase agreements commonly provide for (i) a specified time for review by the seller, (ii) a requirement for the seller to prepare an objection notice that specifically addresses any adjustment that the seller disagrees with and identifies the grounds for its disagreement, and (iii) any items to which the seller has not objected to be deemed accepted and final.
The proposed closing statement is typically the buyer's only opportunity to propose adjustments to the purchase price based on a net working capital adjustment mechanism and the objection notice is typically the seller's only opportunity to dispute such proposed adjustments.
Under normal circumstances, the objection notice should not contain a blanket objection to all adjustments proposed by the buyer. The individual objections are generally required to have a basis in the purchase agreement. On some occasions, the parties are still in the process of exchanging information as the objection notice becomes due. In such instances, the parties can agree to extend the deadline for the seller's objection notice or the seller can object pro forma to the items for which it has not yet received sufficient information to come to a fully informed conclusion. Extending the deadline may result in a cleaner process, but the latter approach has the benefit of taking a series of uncontested items off the table.
The Negotiation Period
In the event the seller submits an objection notice, many purchase agreements provide for a period of negotiation (e.g., 30 days) between the parties to resolve the objections prior to a formal dispute resolution process.
During this negotiation period, the parties will share and discuss information regarding their positions on the adjustments proposed by the buyer. Frequently, the seller will request additional supporting documentation from the buyer to more fully understand the basis for the buyer's proposed adjustments. It is not unusual for several of the proposed adjustments to be resolved between the parties during this negotiation period.
Example: Misplaced and Found Inventory
After the closing, the buyer counts the inventory, finds items missing, and adjusts the inventory balance to incorporate the results of the count in its proposed closing statement. The proposed closing statement, thus, reflects a variety of missing items and a downward adjustment of the purchase price.
The seller objects to the adjustment as it believes there was no inventory missing as of the closing date.
Subsequent to the objection notice, the seller is able to help the buyer find the missing items, which the company keeps in a special supply closet in one of its offices.
The negotiation process is not only an opportunity for the parties to exchange information. It also allows the parties to critically assess their positions and the positions of their counterparty. As various items are often discrete, as opposed to interdependent, it is common for multiple items to be resolved as the parties trim and exchange their respective “weak” positions. We discuss the negotiation process and the “resolution matrix” that can assist a party in analyzing its position across various items in Chapter 10.
Unresolved Disputed Items Submitted to an Accounting Arbitrator
If the parties are unsuccessful in reaching an agreement on all of the seller's objections to the buyer's proposed closing statement, the unresolved items, now the “disputed items,” are submitted to an accounting arbitrator for a final and binding determination. The accounting arbitration process is often specifically provided for in purchase agreements for which such a process is relevant (i.e., transactions with post‐closing purchase price adjustment provisions related to an accounting metric such as net working capital).
The types of disputed items that typically end up being submitted to an accounting arbitrator for resolution—as opposed to being resolved through negotiation—are often proposed adjustments that are significant in dollar amount, involve real or perceived departures from the company's historical accounting practices, require significant judgment under GAAP, and/or involve real or perceived departures from provisions of the purchase agreement such as transaction‐specific non‐GAAP adjustments. For example, the buyer proposes to reduce accounts receivable by $1 million based on its assessment that certain older receivables should be written off in accordance with GAAP. The seller perceives the change as based on the buyer's preference for a strict accounts receivable aging methodology to determine the allowance for doubtful accounts. The seller disputes the proposed adjustment as violating the purchase agreement provision requiring the use of the seller's historical accounting policies.
The disputed items that end up being tendered to the accounting arbitrator for resolution are documented, discussed, and supported in the various submissions to the accounting arbitrator. After considering the information provided by the parties, the accounting arbitrator renders a determination on each of the disputed items, formally resolving the dispute.
THE DISPUTE RESOLUTION PROCESS
Purchase agreements commonly provide a framework for calculating net working capital as well as procedures to finalize the amount and resolve any related disputes. Purchase agreements, however, do not necessarily specify each element of the accounting arbitration process. Either way, a typical dispute resolution process includes the following steps:
Retention of the accounting arbitrator
Parties' initial submissions
Parties' rebuttal submissions
Arbitrator interrogatories and document requests
Hearing (optional and relatively uncommon)
Arbitration award
This section provides a brief overview of those major elements of the dispute resolution process (i.e., the activities from the engagement of the arbitrator through resolution). We discuss the mechanics of the arbitration process, including the selection of the accounting arbitrator and the various submissions to the accounting arbitrator, in more detail in later chapters.
Retention of the Accounting Arbitrator
The first step in the formal dispute resolution phase is the retention of the independent accountant. In order to retain the accounting arbitrator, the parties first have to agree on his or her selection. Purchase agreements vary in the extent of guidance they provide on the selection of the accounting arbitrator, ranging from very little guidance to highly specific instructions. For example, some purchase agreements simply state that the parties will jointly select and retain an accounting arbitrator while other purchase agreements include a list of individuals in order of preference. More is discussed on this topic in Chapter 11.
After selecting an accounting arbitrator, the parties have to agree with each other and the accountant on the terms of the engagement. That can involve substantial effort and multiple drafts of the accountant's engagement letter as that letter typically defines the dispute, lays out the procedures to be followed, and establishes the boundaries of the arbitrator's authority. As a result of the selection process and the detail commonly included in the engagement letter, the retention of the independent accountant can take much longer than the parties anticipated when the purchase agreement was drafted.
Example: Arbitrator Retention Process and Delays
Day 1: The parties agree to submit the disputed items to the independent accountant for resolution in accordance with the purchase agreement.
Day 3: The parties approach the accountant named in the agreement to serve as the arbitrator.
Day 9: The accountant declines the engagement due to a conflict of interest.
Day 11: The parties identify another accountant at a similar firm and approach that accountant to serve as the arbitrator.
Day 15: The second potential arbitrator makes a disclosure to the parties resulting from his firm's conflict check, but states that he or she believes it does not threaten his or her independence. The second potential arbitrator believes the disclosed item does not need to stand in the way of his or her retention.
Day 18: The parties have a conference call with the second potential arbitrator.
Day 21: The parties agree to proceed with the retention of the second potential arbitrator.
Day 24: The second potential arbitrator provides a draft engagement letter to the parties.
Day 28: Both parties provide comments to the draft engagement letter.
Day 30: The second potential arbitrator circulates a revised draft engagement letter to the parties that incorporates the proposed changes.
Day 32: The parties approve the engagement letter.
Day 33: The engagement letter is finalized and executed.
The Proceedings before the Accounting Arbitrator
Purchase agreements vary in the level of detail provided regarding the accounting arbitration proceedings. Purchase agreements can range from providing only general guidelines regarding the submissions to the arbitrator to including a detailed process.
It is not uncommon for the detailed arbitration process to be first set forth in the independent accountant's engagement letter or agreed to immediately after his or her retention. The process is generally more involved than a simple exchange of information and positions. By means of example, the following schedule, or some variation thereof, is commonly used for accounting arbitrations:
The parties simultaneously provide their initial submissions to the accounting arbitrator.
The parties simultaneously provide their rebuttal submissions to the accounting arbitrator.
The accounting arbitrator sends his document requests and/or interrogatories to the parties.
The parties submit responses to the accounting arbitrator's document requests and interrogatories.
An (optional) in‐person hearing may be held in some matters.
The accounting arbitrator issues the award.
The time between each step in the process varies from matter to matter depending on the scope of the items in dispute, scheduling conflicts of the parties and the accounting arbitrator, and other factors. The initial submissions, rebuttal submissions, and the parties' responses to the arbitrator's document requests and interrogatories are also provided to the opposing party. In practice, the arbitrator often cross‐forwards the parties' submissions upon having received the submissions from both sides.
The initial and rebuttal submissions should generally be accompanied by all supporting documentation necessary for the accounting arbitrator to review and assess the respective parties' position on each item in dispute. At a minimum, the parties typically include the purchase agreement, the preliminary closing statement, the buyer's proposed closing statement, and the seller's objections thereto as well as a selection of correspondence and supporting documentation already exchanged between the parties with their initial submissions. In addition, the parties can submit additional factual and financial supporting documentation, including, for example, various spreadsheets, company documents reflecting business or accounting practices, and historical financial statements. In addition to the typical supporting documentation, the parties can also include affidavits from individuals that are knowledgeable regarding the company's accounting or other relevant topics. The parties can also include expert reports or expert affidavits with their submissions, such as an expert report that discusses the industry in which the company operates to provide context for the argued accounting treatment.
After the initial submissions, the parties typically have an opportunity to provide rebuttal submissions. In most cases, the sole purpose of rebuttal submissions is to provide each party an opportunity to provide rebuttal arguments and accompanying supporting documentation in response to the positions of the other party as presented in their respective initial submissions. Rebuttal submissions are generally not intended to facilitate the raising of new issues. It is not uncommon for parties to abandon (concede) some of their positions in their rebuttal submissions based on the support provided with the opposing party's initial submission.
After receiving the initial and rebuttal submissions, the independent accountant will, if necessary, issue document requests and interrogatories that include questions for the parties. In some proceedings there can be multiple rounds of arbitrator document requests and/or interrogatories based on the nature and complexity of the disputed items and the information already provided by the parties.
In addition to written submissions and the accompanying supporting documentation, there can be a hearing before the accounting arbitrator. If the parties elect to have a hearing, it is typically a one‐day event consisting of presentations from both sides and an opportunity for the arbitrator to ask questions in person.
The Arbitration Award
After analysis of the information provided by the parties and in accordance with the terms of the applicable purchase agreement, the independent accountant provides the parties with a determination for each of the disputed items in the agreed‐upon level of detail (the “award”). In practice, the award can range from a one‐page schedule to a fully reasoned award report that incorporates a detailed discussion of the independent accountant's considerations in support of his or her conclusion. In addition to decisions on the individual disputed items, the award can also include a calculation of the impact on the purchase price and an allocation of the fees and expenses of the independent accountant between the parties. The parties can preemptively provide for the type of award in the purchase agreement or, as commonly occurs, they can decide on it later in the process, for example, at the time of the retention of the accounting arbitrator.
A key aspect for an appropriate resolution of a post‐closing purchase price dispute is for the parties, their advisors, and the accounting arbitrator to understand the specific mechanics and requirements for preparing the final closing statement including the net working capital (or other purchase price adjustment trigger).
Purchase agreements vary and often contain transaction‐specific provisions that may include, for example, non‐GAAP measures for specific items. The arbitrator and the parties should be careful to closely observe the provisions of the purchase agreement that governs the transaction at hand in presenting and reaching a determination regarding the disputed items.
CHAPTER 3Post‐Closing Net Working Capital Adjustments
At a basic level, a company's net working capital is the difference between its total current assets and its total current liabilities. In summary, current assets are cash and other assets that are reasonably expected to be realized in cash, sold, or consumed during the normal operating cycle of the business.1 Current assets include items such as accounts receivable, inventory, and prepaid expenses. Similarly, current liabilities include short‐term liabilities such as accounts payable, accrued liabilities, and the current portion of long‐term debt. In essence, net working capital is the short‐term capital available to be used by the business in its day‐to‐day operations.
For purposes of many valuation analyses, the analyst considers whether the company has sufficient working capital to operate its business. If the company has a shortfall of or excess working capital, an adjustment needs to be made to the value of the company. Such adjustments can have a dollar‐for‐dollar impact on the valuation.
Example: Comparative Valuation Impact
Company A and B are identical. Company A has sufficient working capital to operate its business (no excess or shortfall). Company B has the same amount of working capital and in addition has a bank account with $1 million in surplus cash (i.e., excess working capital).
The value of Company B is $1 million higher than Company A as the buyer could buy Company B, extract $1 million, and end up with the same company as if the buyer had purchased Company A.
Note
: The example is simplified and ignores possible complications such as adverse tax effects. Moreover, excess cash is—in practice—not necessarily transferred with the company but may be extracted by the seller prior to closing.
NET WORKING CAPITAL ESTIMATION AND ADJUSTMENT
On the date the transaction
