Survey shows how adjustments lead to M&A disputes


Precise language and careful planning avert disagreements


With the rebounding economic conditions in 2023 after an M&A slowdown, there have been more disputes over post-closing calculations of purchase price adjustments, such as working capital true-ups and earn-outs, compared with three years earlier, according to a new Grant Thornton survey report.


The report, reflecting the results of a survey of 150 deal participants who worked on a total of 3,668 deals in 2022, reveals the following:

  • Out of the 2,678 deals with working capital adjustments, 965 disputes arose.
  • In the 1,981 deals with earn-out adjustments, 515 disputes occurred.

Although the proportion of deals disputed appears to have decreased since the firm’s previous survey, dispute activity has increased with the rise in overall deal volumes. The survey of deal professionals sheds light on how disputes commonly arise, how they can be avoided, and how they can be resolved when they occur.


Buyers and sellers have a lot at stake in every deal, and the complexity of these transactions leaves room for potential misunderstanding on both sides. Meanwhile, getting hung up in disputes costs everyone time, money and the opportunity to focus more intently on generating the value that initially brought them to the table.


These five points from the report can help dealmakers keep their transactions moving in the right direction.

  • Use precise language. A brief reference to “GAAP” or “GAAP, consistently applied” for calculations of working capital and earn-outs leaves room for interpretation that can lead to disagreements. Adding an exhibit to the purchase agreement that describes the specific accounting policies to be applied in these important calculations helps reduce disputes.
  • Establish a subsequent events cutoff date. Setting a cutoff date for information to be considered in calculating working capital or an earn-out can prevent disagreements. Both parties may benefit if the cutoff date is set some time after the closing date, as some hindsight may be needed to measure values most accurately.
  • Permit reasonable access. Disputes are more likely to occur when the seller’s access to information is completely cut off at closing. Almost two-thirds (65%) of deal professionals responding to Grant Thornton’s survey prefer that sellers receive either “full access” or “reasonable access during working hours” after closing.
  • Use a locked box mechanism. This mechanism derives the purchase price adjustments for cash, debt and working capital from a historical balance sheet. After diligence and review, the locked box acts as a proxy for the closing balance sheet. But the date needs to be set carefully, as a balance sheet that’s too recent may not have been adequately scrutinized, while a long gap between the locked box date and closing may present issues in establishing the value accrual and leakage.
  • Get help from external providers. Engaging outside professionals with substantial M&A experience can help prevent critical mistakes throughout the deal process. After the deal closes, external providers can review the terms of the deal with fresh eyes and may offer a balanced view of the circumstances that can mitigate or resolve a dispute.

With deal activity picking up in 2023 after a lull the previous year, the potential for disputes increases. That’s why it’s even more important to take steps to minimize the risk of disagreements that can cost you time and money.


For additional findings from Grant Thornton’s M&A Dispute Survey report or to learn more about dispute prevention guidelines and best practices in arbitration, contact us or download the survey report



Maxwell G. Mitchell

Max leads Grant Thornton’s Purchase Agreement Advisory Practice, having established the service offering for Grant Thornton in February 2019. Max previously performed the same work for Grant Thornton UK. Max has fourteen years of experience providing financial and accounting services to clients.

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