Merger Due Diligence
Litigation Disclosure Risk in M&A
Mergers, acquisition and spin-offs are examples of large corporate transactions in which accurate valuation and due diligence are vital to pricing and, potentially, defending the transaction.
But how should a company’s litigation portfolio impact the transaction and what disclosures are essential to satisfy a standard of full, true and plain? Financial accounting values often grossly misstate the true economic exposure to a lawsuit. And qualitative expert opinion tends to focus on trial value rather than litigation value.
The legal risk associated with disclosure and due diligence of the litigation portfolio is significant. The acquiring company must fully understand the legal exposures it will assume, and the target company has an obligation to ensure that its disclosures do not involve misrepresentation. Failure to satisfy either requirement can raise the spectre of a post-merger shareholder class action.
As legal liability becomes an increasing factor in enterprise value, the stakes have never been higher. In its survey of litigation trends, Fulbright has estimated that billion dollar-plus companies in the US have more than 140 legal cases outstanding at any one time. Correctly quantifying legal exposure has now become a portfolio risk measurement issue.
At SettlementAnalytics™ our models for the analysis of litigation can provide a more complete and rigorous approach than conventional “expected value” methods. More importantly, our process results in a documented, quantitative evaluation that is both defensible and open to scrutiny. In an increasingly litigious environment, a more quantitative basis to litigation risk analysis can be a first line of defence to any post-merger objection.
To learn more about our models, analytic processes and online litigation analytics platform, “OptiSettle”, Registered Visitors can read more here. To apply for registration to this website, please submit the registration form here.