Structuring Special Indemnity Funds For Disputed Merger Equity Claims
A segregated indemnity fund holds disputed merger consideration in escrow, ring-fencing capitalization claims and funding defense costs until legal release.
post closing purchase price reduction
Meaning
Adjustment to the final consideration paid for a company based on the difference between the estimated and actual financial state at the time of the transfer. Audit cycles for a post closing purchase price reduction occur after the buyer has had sixty or ninety days to review the books. This period allows the new owners to reconcile the bank statements, inventory counts, accounts receivable or tax records against the projections provided at the close.
If the actual cash on hand is lower than the estimate, the buyer deducts the difference from the next scheduled payment.
Audit Outcome
Final calculations occur after the buyer has had time to review the accounts. This process ensures that the price paid reflects the actual state of the business on the closing date.
Valuation Delta
Discrepancies in working capital or net debt are the most frequent causes for a downward revision of the payout. The resulting reduction corresponds to a change in the underlying value of the entity as of the closing date.
Recovery Mechanism
Sellers maintain the right to dispute the findings of the buyer by hiring an independent accountant to review the records. This secondary review prevents the buyer from making arbitrary adjustments to the price.