When developing their bids for businesses, buyers seek to take into account all known elements of risk. One area of risk that is particularly concerning to buyers is litigation (actual and threatened).
As an example, if a company has been sued for breach of contract, buyers will want to understand the amount of the potential claim and will typically reduce their bid by the expected amount of the claim plus a risk factor, such as 30%. Buyers will also want to understand potential claims that have not yet risen to the level of formal litigation and make the same kind of evaluation. For instance, a customer claiming damages creates the same set of risks, and buyers need to be made aware.
A failure to disclose actual or threatened litigation erodes seller credibility and can cause delays in the sale process and outsized price reductions when the buyer uncovers the issue during due diligence (which they always do). For these reasons, we recommend sellers disclose material litigation (actual and threatened) early in the sale process and be forthcoming with the facts and circumstances surrounding the matters in question.
Have a great day everyone.
Managing Director, Aerospace