By Bart Higgins, Principle/Attorney
Private equity firms infuse capital, provide leadership and generate wealth by creatively leveraging the investment. But what happens when a target company has pending or threatened litigation?
You could ask your attorney to provide an analysis and perform a due diligence review of the litigation. If your attorney is not familiar with institutional quality due diligence reviews, however, you may not receive the information you need to make an informed decision. You should be confident that your attorney has given you an unbiased assessment of the prospect and the pending or threatened litigation. Other considerations regarding the acquisition may also need to be considered.
The following is an example of what happens when a strategic advisor with a proven methodology and process is involved in the analysis and due diligence review.
A large regional residential and commercial brokerage firm was in the process of acquiring another real estate company. The target company had several open, active litigation matters that included claims of fraud and misrepresentation regarding the manner in which the company conducted its business. The potential acquisition was a stock purchase for tax purposes, which meant that any current liability or claims asserted against the target company would be assumed by the buyer.
The strategic advisors evaluated the immediate risk of the pending litigation, but then they took it a step further. It was important to determine whether the target company had a flawed business model and/or training practices to encourage increased sales. If management aggressively encouraged these types of systemic ill-founded marketing practices, future litigation could possibly erupt. Were the prior litigation matters concentrated in the hands of a few salespersons, or did it also relate to the policies and procedures of the company?
That was a key question that an attorney who was not familiar with due diligence reviews may not have thought to ask. The answer to that question could have far reaching ramifications to your bottom line.
In our example, it was determined that the pending litigation matters were more of an anomaly rather than a systemic practice. The claims were not localized to a specific salesperson and were not attributable to an aggressive sales strategy. The pending litigation matters were successfully resolved within approximately six months of closing on the purchase.
Who were the strategic advisors who dug deeply into the due diligence issues to ensure that meaningful information and data was obtained for the purchaser? None other than the lawyers at Shields Legal Group. What was the process they used to perform their analysis and guide their advice? The same unique and proven approach called Corporate Litigation Advisors, offered to numerous clients of Shields Legal Group.
Corporate Litigation Advisors (CLA) can provide due diligence reports to institutional investors who must decide whether to move forward with an acquisition, even though the company is embroiled in litigation. CLA utilized a proven framework for evaluating disputes and experience reporting to institutional investors with actionable, readily understood information.
As an unbiased third party aligned with your interests as an actual or potential stakeholder, we call them like we see them. We provide serious investors with serious, unbiased information designed to inform your decision-making. Our only priority with due diligence engagements is to get the facts and their implications to the proper parties as accurately and with as much clarity as possible.
If you are about to acquire a company that has pending or threatened litigation, doesn’t it make sense to have a strategic and trusted advisor by your side? Please contact me at 469-726-3083 or send an email to BHiggins@ShieldsLegal.com. To learn more about what CLA can do for you, please visit CLAdvisors.com or ShieldsLegal.com.