It is very common that new, undocumented liabilities appear post the closing of a transaction. Some due to timing and others due to issues with transparency within the selling organization. In this episode we will discuss the mechanism we put in place to account for these unplanned expenses.Some questions we answer:What is a true-up and some examples?What are representations and warranties? Is that an entirely separate issue?Sandbag clause in reps and warrantsWhat’s the difference between hitting an earn-out and a true up? What remedies does a buyer have if there are unnamed liabilities? How does the buyer minimize risk?Are there insurance policies that can aid smoothing out potential liabilities More covered:A few scenarios that we’ve encountered in the past. Why they happenNot everyone is involved in the M&A process (example: sales may not have disclosed a client dispute to leadership)We discuss this in detail in previous episodes (32 and 33 who should be involved)Thought to be immaterial but liability grewHow we plan for the unplannedHoldbacks (amounts kept from closing disbursements for a period of time) Ensure proper due diligence is performed (special attention to aging AR and AP)Deep evaluation of employee related issues (potential future litigation) Now what:Have a well documented process and threshold for accessing holdback fundsIdentify any errors in the reps and warranties - purposeful or otherwise Have a clear understanding of the communication requirements (within X days via Y method) Summary:These unplanned liabilities are commonHave a plan to mediate the exposure Be diligent in your discovery, reps and warrantiesBe ready with a plan, including a holdbackRevenue Rocket can help with undisclosed liabilities before, during, and after a transaction. Connect with us to set up a no-obligation introductory call with our team: [email protected]
Listen to Shoot the Moon on Apple Podcasts or Spotify.Buy, sell, or grow your tech-enabled services firm with Revenue Rocket. 

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