Nick Andrews: Forensic Accounting in M&A W&I Claims Guide
Navigating Warranty and Indemnity (W&I) claims in mergers and acquisitions (M&A) can be a tricky business. These claims, which pop up when a breach of contract is suspected regarding warranties made during a deal, can shake up the value of a transaction and the relationship between the parties involved. In this chat with Nick Andrews, a Forensic Accounting Partner at BDO LLP with 25 years of experience, we gain valuable insights into the world of W&I claims and the important role forensic accountants play in sorting out these disagreements.
When it comes to W&I claims in M&A transactions, Nick highlights that surveys have shown accounting warranties are the most commonly disputed claims. These often revolve around the target company’s financial accounts not providing an accurate picture of their financial health. Beyond that, common breaches include disagreements over asset values, liabilities, management accounts, compliance with accounting standards, and assurances about the target company’s financial stability. Nick also touches on issues like regulatory violations, threatened legal actions, and tax concerns that can spice up a W&I claim.
Nick also delves into the pitfalls companies might hit when dealing with W&I claims. He emphasizes the importance of seeking out legal and accounting advice to navigate these murky waters successfully. Legal advice can help pin down if a warranty breach has actually occurred, while accounting guidance can assist in determining the financial impact of any breaches. It’s crucial to have a solid basis for calculating potential losses associated with a breach to avoid complications down the road.
Drawing from his experience as an expert witness in multiple cases, Nick stresses the essential role that expert testimony plays in settling W&I disputes. In litigation or arbitration scenarios, expert witnesses are key players in presenting evidence and helping the parties understand the financial implications of the claims made. Mediation processes often require expert input as well, helping to bridge gaps between opposing parties before things escalate to a courtroom battle.
When it comes to assessing a W&I claim post-acquisition, Nick’s approach is thorough and meticulous. By diving deep into relevant documentation such as the Sale and Purchase Agreement and any insurance policies in play, along with conducting forensic investigations into financial records, Nick and his team get to the bottom of the claim’s validity. Their goal is to provide clients with clear insights into the strength of their claim, pinpointing potential weaknesses and estimating the extent of potential losses upfront to avoid surprises later on.
With the right expertise and guidance from professionals like Nick Andrews, navigating the choppy waters of W&I claims in M&A transactions can be a smoother ride. By understanding the nuances of these claims and having a solid strategy in place, companies can protect their interests and ensure a fair resolution to any disputes that may arise in the complex world of mergers and acquisitions.
