In today's current business climate, mergers and acquisitions are often the pinnacle of a CEO's success. I, personally, would be delighted to sell my firm for a hefty fee and retire. Mergers and acquisitions (commonly called M&As) are on the rise. In the promotional products industry alone, I counted at least four notable M&As that took place in July 2013. August barely started, and another M&A was announced—Standard Register acquired top 50 distributor WorkflowOne in a transaction valued at $218 million.
The number of M&As will continue to increase, along with the amount of lawsuits that accompany them. To provide some perspective, in 2012, litigation was brought 92 percent of the time in transactions involving more than $100 million.* In fact, the average transaction resulted in five different lawsuits.† As an example, earlier this year, Dell announced that it would be subject to a buyout. In light of that proposed transaction, 24 lawsuits were filed.
Dell is an example of pre-acquisition litigation, where investors or others sue to stop a transaction from happening (or, in lieu thereof, to obtain a monetary payout in exchange for not contesting or trying to stop the deal from closing). Substantial litigation also occurs after acquisitions occur, where one party to the transaction sues after the deal closes and seeks money damages. Post-acquisition litigation involves claims where, for instance, a buyer sues the seller for making misrepresentations concerning the business that was being acquired, or a key employee or executive of the selling company violates a restrictive covenant with the buyer.
Pre-acquisition litigation cases are attractive to plaintiffs' lawyers because they present significant settlement leverage—defendants are typically under pressure to close the deal quickly. Increasingly, however, plaintiffs' lawyers are keeping pre-acquisition litigation alive after the deal closes by, among other things, limiting their claims to money damages.