Mergers & Acquisitions (M&A): A Contentious Issue?

Recent data from litigation data analysts Solomonic [1] shows that litigation in the area of mergers and acquisitions (‘M&A’) is on the increase. The data produced by Solomonic shows that from 2019 to 2021 there has been a 200% increase in the number of English High Court claims issued in the field of M&A. From the Solomonic data, this trend does not appear to be restricted to any particular commercial sector but is a trend which is happening across the board. We’ll consider one or two reasons why this might be the case in a moment.

I train a lot of non-native speaking law students who are moving into what they see as the non-contentious field of M&A. Of course, they need language and legal skills relevant to the successful negotiation, in English, of M&A deals and familiarity with all aspects of the M&A process and the relevant legal documentation. The one aspect that very few of them actually appreciate is the potential for litigation in or after the process. This is understandable. However, focusing at least a bit of attention on it, and its potential consequences - for their clients, their firm, and indeed for themselves.

As anyone who has ever been involved with it knows, litigation is costly, lengthy, risky, and can have a highly damaging effect on commercial relationships. It should be a last resort in any dispute, but sometimes it is unavoidable. And, often, the reason it is unavoidable at that stage is because something fairly basic has been overlooked, or not done properly, during the ‘non-contentious’ phase.

In relation to the recent uptick in M&A litigation, we should also at least bear in mind the recent global health situation and its impact on the number of deals being done. According to the UK government’s Office for National Statistics (ONS) [2]:

“Mergers and acquisitions (M&A) activity has been affected by the global coronavirus (COVID-19) pandemic, where the total number of completed monthly domestic and cross-border deals fell from 196 in March 2020 to a low of 58 in May 2020. Since the fall, M&A activity started to recover with an upward trend to December 2020 (145 deals). January 2021 (114 deals) recorded a slight decrease before the upward trend continued into March 2021, which recorded 153 total monthly deals – the highest since March 2020 (196 deals).

There often seems, to me, to be an artificial divide between non-contentious and contentious lawyering. And, by ‘contentious’, I mean litigation. Those who negotiate and conclude M&A deals, and other seemingly non-contentious commercial contracts, often never give a moment’s thought to the possibility that what they are involved in might, just might, end up in a multi-million-pound litigation process. If they had that possibility in mind, perhaps some of the litigation we see might never be necessary.

So, in relation to M&A litigation specifically, where is this upsurge in litigation coming from? In an excellent recent article by BCLP Law [3], some suggestions are given for the apparent current trend. These include:

· Increased adoption of warranty and indemnity insurance (W&I insurance)

· The rising trend in cases where a standard ‘boilerplate’ provision has been overlooked (BCLP cite, in particular, variation, waiver, and assignment clauses in this respect)

· Litigation being used to ‘re-price’ deals (hindsight is a wonderful thing!)

· Attempts to remedy insufficient due diligence.

The second, third, and fourth reasons are all avoidable. There is, as I have often said, never any excuse for treating boilerplate clauses as any less important to a commercial deal as any of the other provisions which are specifically referable to the agreement being done. However, they are still – all too often – seen by lawyers as of secondary importance. They are not.

I have long thought that if trainee lawyers who were moving into ‘non-contentious’ areas, such as M&A, spent even a week with litigation lawyers who were dealing with the fall out of some of these avoidable issues, it may focus their minds more sharply on getting things right at the very outset. As I said above, litigation has consequences for clients, law firms, and individual lawyers. If your client ends up in hugely expensive, lengthy, and avoidable litigation because something has not been done properly, they will never thank you (even if they ‘win’), and they may well take their future business elsewhere. Client retention is, and should be, a concern for every law firm. [4]

During the summer of 2021, I trained several students who were on the verge of joining international law firms. One of the students I was training on a 40-hour programme was an academic lawyer who was just finishing her doctoral thesis and was about to join a prestigious law firm as a trainee. We were looking at some of the language and issues around an M&A deal that had recently found itself in the English High Court. After a few minutes, she said:

“This is very interesting, but I don’t think I’ll be doing any litigation.”

I told her that she might be correct, but that someone in her firm might have to deal with the consequences of something she had overlooked during the non-contentious work she would be involved in. We then focused on all the potential consequences of this – for the clients, the law firm involved, and the lawyers, and the penny began to drop. In English, we have a saying: ‘A stitch in time saves nine.’ This basically means that doing something right at the beginning of a process can save a lot of time, trouble, and expense in the future. One of your main aims as a ‘non-contentious’ lawyer is to try and make sure that the commercial litigation department in your firm never has to try and tidy up a mess that you have made that could have been avoided.





Note: This article is for educational and informative purposes only. It is in no way intended to be legal advice and must not be taken as such. If you need legal advice, you should consult an appropriate lawyer or legal firm.

© Cambridge Legal English Academy 2021

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