Deals, Related Disputes Rise as Part of a Complex Global M&A Landscape, Upcoming BRG Study Finds

Tech is a top source for M&A disputes, and cross-border fights are common, according to an upcoming BRG study.

Those are among the top findings in a study BRG is set to release this month. With a global focus, the new research surveyed 115 lawyers (either private practice or in-house), 80 private equity professionals and 30 corporate finance advisors in August 2021. Respondents to the study, which follows BRG’s 2020 M&A Disputes Report, offer key regional and sector insights.

The study also provides important qualitative analysis from top legal minds in dealmaking and disputes. Here’s a preview of the results.

With Cross-Border Disputes Common, Blame Game Happens

We asked respondents if they expected deal volume and disputes to increase over the next 12 months. More than 70 percent expect increases in both areas—and about half of that group expects increases of more than 20 percent.

We then asked the respondents which regions looked most primed for more disputes. Interestingly, about a third of respondents each chose Asia-Pacific (APAC), North America and Europe, the Middle East and Africa (EMEA), with APAC slightly ahead at 35 percent.

Things got even more interesting when we dug deeper. Respondents from North America said APAC or even Latin America (which came in at just 5 percent overall) would drive disputes, while those from APAC looked west to North America as the chief dispute source. For EMEA respondents, the only group who picked their own region, market rivalries or a sort of blame game might be at play.

The complexities of cross-border disputes have, of course, always made them ripe for disputes, perhaps more so given complicating pandemic factors in 2020 and 2021, with one dispute resolution lawyer saying nothing he has dealt with recently has been “purely domestic.” Other interviewees called out specific markets as particularly dispute heavy—notably China, South Korea and the US—though that largely tracks with pre-COVID trends. India also received mentions for a recent uptick in disputes.

Tech Among Sectors Leading Disputes

Anyone watching M&A activity of late knows that the tech sector is a prime driver as far as total deal volume goes. In fact, it represented 21 percent of all deals in the first six months of this year. Not surprisingly, survey respondents said this area was among the sectors experiencing an uptick in disputes.

Technology (41 percent) trailed only hospitality and leisure (45 percent) and life sciences (44 percent) as areas that have had increased dispute activity over the previous year, according to our respondents. The pandemic’s effects can be seen here, notably in how businesses are relying increasingly on new technology solutions. One lawyer whose practice focuses on arbitration said the technology sector had “become the center of our universe in many ways, including in disputes.”

Compared with their counterparts in other regions, respondents in APAC pointed to the tech sector as a bigger driver for disputes. Additionally, not everyone was convinced about COVID’s impact, with one APAC-based lawyer saying what’s happening could be more about where we are with the economic cycle.

The Best Solution? MAC/MAE Clauses

About half of our survey respondents said material adverse change (MAC)/material adverse effect (MAE) clauses were the best contractual tool to guard against post-close disputes. That tracks with what we discussed in last year’s report focused on APAC, in which we predicted that MAC clauses would feature more prominently given the complexities of pandemic-related disputes.

Whether pandemic-related events would fit under force majeure clauses, which are standard in many contracts, is another matter worth watching. Some experts were puzzled that anyone would assert that pandemic-related issues were not covered, declaring that COVID-19 is close to the very definition of an “act of God.”

More detailed language about the pandemic when it comes to force majeure might emerge. Even then, “There will obviously be debates around whether or not a particular aspect of the pandemic has triggered that force majeure clause or not,” one lawyer said.

The full study also will cover private equity’s role when it comes to M&A disputes and burgeoning interest in special purpose acquisition companies (SPACs), among other topics.