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Article: Purchase-Price Adjustment: A Trap for the Unwary.
- Article from:
- The Practical Accountant
- Article date:
- August 1, 2007
- Author:
CopyrightCOPYRIGHT 2007 SourceMedia, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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In most M&A transactions, some form of post-closing purchase-price adjustment is part of the agreement. Yet, even a sophisticated M&A attorney can't draft a purchase-price adjustment provision properly, unless he or she understands the seller's accounting practices.
The adjustment takes into account changes in the selling company's financial status between: (1) the most recent financial information the buyer reviewed, and (2) the selling company's actual financial status on the closing date (the "closing balance sheet"). To draft this provision correctly, the attorney needs to understand the seller's accounting practices, especially those that can affect the ...