SCC Spotlight Talk: M&A disputes 

Interview with Carl Svernlöv, partner, M&A/Corporate, and Erik Forsin, partner, Dispute Resolution, Baker McKenzie

At the SCC, we recently reported that post M&A disputes were in 2024 the most common type of dispute administered at the SCC, with 57 registered cases that year. While post M&A disputes have always been a fundamental part of the SCC’s caseload, the development of SCC arbitrations relating to M&A reveals a steady increase in international and high-volume post M&A cases. Against this background, Baker McKenzie’s Carl Svernlöv and Erik Forsin discussed with us how today’s M&A disputes arise and the challenges facing the parties. 

Why do you think the number of M&A disputes is increasing (both domestic and international)? 

In recent years, there has been a significant increase in transactions, coupled with a volatile economic cycle. Many acquisitions made during an economic upturn, which then quickly cools down, result in buyers paying high prices for companies that may not perform as expected. In our experience, such problems tend to be overlooked during an economic boom. Additionally, transactions have become more complex due to increased international investments in Sweden. We believe these factors, both individually and collectively, contribute to the rise in disputes related to company acquisitions. Also, share purchase agreements almost always refer these disputes to arbitration.  

What are the typical issues in M&A disputes? 

According to our experience and statistics gathered by Baker McKenzie from public sources, as well as arbitration cases in which the firm has acted as counsel, the most common disputes are those relating to disagreements over the purchase price and, but to a lesser extent, representations, warranties and indemnities. It is not surprising that disputes arise in relation to purchase price regulations, which are often among the most complex and negotiated parts of share purchase agreements. Disagreements also frequently arise out of earn-out regulations, where typically the buyer (or more commonly the seller) is dissatisfied with the end result. To a lesser extent claims to arise from warranties provided by sellers, when buyers believe (right or wrong) that they did not get what they bargained for). Additionally, the economic climate influences these disputes, as more disputes tend to arise during economic downturns. 

What are the specific challenges of the different types of disputes? 

M&A disputes can be extensive and complex. Disputes involving purchase price regulations or earn-outs often involve detailed calculations, and the outcome depends on the accounting principles used. Compensation for breach of warranty provisions is usually the only remedy available to buyers, and the Swedish Sale of Goods Act, which typically applies to the purchase and sale of shares in Sweden, is often excluded in share purchase agreements under Swedish law. However, questions about analogies from the Sale of Goods Act frequently arise in Swedish M&A disputes, leading to legally challenging situations. The complexity of these disputes suggests they should be handled by individuals with specific experience, both as counsel and arbitrators. For this reason, it is less appropriate for these disputes to be settled in general courts, which also explains the increase in arbitration for these types of disputes.  

Can you draw any conclusions in relation to the outcome of M&A disputes? 

The clearest trend is that sellers clearly have a better success rate than buyers in M&A disputes. This is likely because it is usually easier to defend against claims than to prove them, and due to the allocation of the burden of proof in these disputes. Another part of the explanation is that the seller’s claim, usually to be paid a specifically agreed price, is procedurally preferable to proving a breach of warranty. For example, statistics indicate that only about 20 percent of plaintiffs in warranty disputes are successful for more than half of the amount claimed. At the same time, only about 40 percent of claimants are successful for more than 10 percent of the amount claimed. In terms of the types of warranty claims involved, disputes over Financial Statements Warranties, Accuracy of Information Warranties, and Material Contracts Warranties are the most common. Allegations of fraudulent misrepresentation are not uncommon, but are rarely proven and thus rarely successful.  

Do you see any trends ahead? 

More and more large acquisitions are being insured with W&I (warranty and indemnity) insurance, which is intended to protect the buyer if the seller’s warranties prove to be incorrect. Given that insurance companies are commercial third parties, this could potentially lead to more disputes being settled through settlements rather than arbitration. W&I insurance covers unknown risks, but there are certain types of claims under guarantees that it normally does not cover, such as government sanctions, fines, and other compensation due to criminal offences. It is difficult to predict the impact this trend will have on the volume of M&A disputes being resolved in arbitration or litigation, but we anticipate that insurance will become an increasingly prominent feature in this type of disputes.