Corporate transactions usually involve the parties entering into a sale and purchase agreement (SPA), which sets out the terms and conditions of the transaction. The SPA may include a requirement to prepare a set of completion accounts as at the date of completion. Where the transaction includes earn-out clauses for the owners and/or key employees of the target business, the SPA will also set out the basis for calculating those earn-outs.

Completion accounts

Completion accounts are accounts prepared by reference to the assets and
liabilities of the target business at completion. They are a typical requirement of many SPAs. A completion accounts mechanism enables the parties to true-up the price payable by the purchaser based on the actual assets and liabilities acquired at completion.

Earn out clauses

Earn out clauses are popular as they help the parties to bridge the price expectation gap. They can also be used to tie in the owner of the target business for a period of time after completion to assist with the transfer of key customer or supplier relationships. Under the terms of an earnout clause the purchase price is trued-up by reference to the profits achieved by the target business over, say, one to two years after completion.

How we can help

RS Forensic has many years’ experience of completion accounts and earn-out disputes. We frequently see SPAs which are internally inconsistent and/or require the completion accounts to be prepared on a basis which is simply impossible. We use our experience of these situations to advise clients on the financial and commercial terms of their SPAs before they sign.

RS Forensic has experience of assisting clients at various stages of the completion accounts and earn-out process:

  • Planning for the process – ensuring the terms of the SPA and its implications are understood and adhered to
  • Preparing the completion accounts or earn-out calculations
  • Negotiating the position and preparing supporting analysis (including
    analysis of the strengths and weaknesses of both parties’ positions)
  • Preparing submissions to the independent expert if required
  • Acting as independent expert under the terms of SPAs to provide an expert determination on the completion or earn-out accounts

Forensic accounting team

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Forensic cases

Advisor to party in a completion accounts dispute

We acted as the expert advisor to a group of shareholders who had sold their nursing home company for c£80 million. The purchaser disputed the completion accounts, proposing a number of adjustments which would have resulted in a £6 million reduction in net assets. We led the expert determination process for our clients, liaising with the clients, their former accountant, auditors and legal advisors and gathering relevant information to enable us to draft the initial submission, a response to the purchaser’s initial submission and responses to the expert’s questions. The expert made a favourable determination for our client, who won over 94% of the amount in dispute.

Expert determination of completion accounts dispute relating to deferral of costs

Appointed as expert to determine the completion accounts in the sale and purchase of a company which put on an annual exhibition for the medical industry. The sale and purchase took place days before the exhibition and we were instructed to conclude on the extent to which various costs should be deferred under the terms of the SPA.

Expert determination of earn out dispute

Appointed as independent expert to settle a dispute surrounding the earn out on the sale and purchase of a company involved in the supply of components to the automotive and industrial markets. We were required to interpret the SPA and apply the relevant accounting principles, a task that was made more difficult by the fact that the purchaser had amalgamated the recording of financial information of the target company with its existing business.

Forensic accounting testimonials

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