M&A Due Diligence: Why Post-Acquisition Disputes Are Rising

Post-acquisition disputes in the UK mid-market have increased by nearly a third over the past two years, according to analysis by several leading dispute resolution firms. The trend is being driven by a combination of compressed deal timescales, remote due diligence processes adopted during the pandemic era, and increasingly complex regulatory environments.

Warranty and indemnity claims are the most common flashpoint, with buyers alleging that sellers failed to disclose material liabilities during the transaction process. Earn-out disputes have also risen sharply, particularly where performance targets were set against economic conditions that subsequently deteriorated.

Eleanor Vance, Senior Partner at Sterling & Partners LLP, said: "The quality of due diligence directly correlates with post-completion risk. We are seeing more disputes arise from inadequate investigation of contingent liabilities and pension obligations during the deal process."

Legal practitioners are increasingly recommending that buyers invest in specialist due diligence workstreams for areas such as environmental compliance, data protection, and employment liabilities, rather than relying on generalised commercial reviews. The cost of additional investigation at the pre-completion stage is typically a fraction of the amounts at stake in post-acquisition litigation.

Industry bodies have also called for greater standardisation of disclosure processes, noting that the absence of uniform disclosure standards across jurisdictions continues to create gaps that lead to disputes.