Dispute valuations and damage assessments
Warranties in M&A transactions allocate risk between buyer and seller. When a warranty proves inaccurate, the buyer may have a contractual claim against the seller. Assessing the resulting damages requires determining how the breach affected the value of the acquired business or the transaction the buyer would otherwise have entered into.
The appropriate counterfactual depends on the nature of the claim. In a warranty claim, the usual comparison is between the value of the shares had the warranty been true (the warranted value) and their actual value at the relevant date. In a misrepresentation claim, the question is generally what the buyer would have done had accurate information been provided before signing. He might have paid a lower price, negotiated different terms or declined the transaction altogether.
Contemporaneous transaction materials are central to the analysis. Valuation models, forecasts, due-diligence reports, investment papers and negotiation records help establish how the target was valued and which assumptions influenced the purchase price.
Where the transaction was priced using an EV/EBITDA approach, maintainable EBITDA may need to be restated. Adjustments may relate to overstated revenue, understated costs, incorrectly capitalized expenses, omitted provisions or exceptional items presented as recurring. Where a discounted cash flow method was used, forecast cash flows should be revised accordingly.
A breach may also affect the valuation multiple or discount rate. Revenue presented as recurring may prove to be non-recurring, customer churn may be structurally higher than disclosed or a key contract or license may be lost. In such cases, the target may have materially different growth prospects, earnings quality and risk than originally assumed.
The treatment of a strategic premium requires separate consideration. Buyer-specific value arising from synergies, market access or competitive positioning will typically not affect a conventional warranty claim, but may be relevant in a misrepresentation claim if the buyer would not have paid the premium had the correct information been known.
Assessing damages is therefore not a mechanical exercise. It requires the right counterfactual, a clear understanding of how the deal was priced and an evidence-based assessment of the breach’s economic impact. Oaklins supports buyers, sellers and legal advisers with independent valuation and damages analyses grounded in contemporaneous transaction evidence.
Where valuation matters most
- Warranty claims following M&A transactions
- Misrepresentation and disclosure disputes
- Claims involving strategic or synergy value
How damages are assessed
- Appropriate legal and economic counterfactual
- Restated earnings, cash flows and valuation parameters
- Analysis based on contemporaneous transaction evidence
What can we deliver
- Independent valuation and damages assessments
- Determination of warranted and actual value
- Assessment of standalone value and strategic premium
Contact us for more information
Partner Valuation Advisory
Full profile
Valuation webinar: poor internal controls: the hidden valuation killers
On September 17, we organize a special valuations webinar. Click here for more information and registrations
Missed our previous valuation webinar?
We have included a recording of the session so you can catch up on the key insights and continue the conversation with a full understanding of the valuation drivers discussed.