Arbitration in post M&A disputes: strategic choice for arbitrators and experts in view of evidence

Contribution by Bart-Adriaan de Ruijter and Maurits Rabbie for the e-book 'Managing and Resolving Commercial Disputes 2022' published by Financier Worldwide in association with the International Centre for Dispute Resolution (the international division of the American Arbitration Association). This contribution focuses on  'Arbitration in Post-M&A-disputes'.

Post M&A-disputes are on the rise according to global research. This is caused by the strong M&A-market from mid-2020, with rising deal volumes (despite economic disruption stemming from coronavirus (COVID-19), in combination with complex new deal and valuation structures with growing private equity involvement, advances in technology and rapidly changing economic conditions (with possible underperformance).

At the signing of a deal, the trend of rising disputes is an underestimated factor. When entering into an M&A transaction, the main negotiations often do not revolve around the ‘applicable law and jurisdiction’ clause. According to research, listed companies often opt for an arbitration clause to procure confidentiality, while smaller companies may, for the sake of convenience, choose the competent court at the place of residence of one of the parties.

Signing and closing of the transaction may, however, not be the end of the deal, but the starting point for further negotiation about adjustment of the purchase price. In the event that a post-M&A dispute arises, the choice of either a public court or arbitration (including the appointed arbitrators and experts) will determine the way legal proceedings are conducted between the parties during the months or even years following the transaction, possibly affecting the outcome of the dispute.

Over the past decade, choosing arbitration in M&A deals is steadily becoming more popular. At the same time, there is a tendency toward increased escalation after the deal. Taking into account this escalation, it is advisable to think strategically about the structure of the possible arbitration process, including the choice of arbitrators and experts when looking at your evidence position (buyer or seller side).  Recommendable is to optimize the evidence position (even before the deal if possible) and implement eventual foreseeable issues in the arbitration clause and later in the procedural order.