M&A buyers, and particularly private equity buyers, commonly price a deal based on a multiple of EBITDA (among other things).
How, then, should damages be calculated if there are breaches of the seller’s representations that informed the buyer’s financial calculations?
A recent Delaware ruling awarded damages to a buyer based on the EBITDA multiple the buyer used to set the purchase price.
The decision is instructive on several levels, including as the court addressed the impact of the purchase agreement expressly defining “losses” to include damages “based on a multiple of earnings, revenue or other metric”.
The decision also comes amid representation and warranty insurance (RWI) data indicating that the frequency of post-closing M&A claims in North America seeking damages on a multiple basis (as opposed to a dollar-for-dollar basis) is trending steadily upwards.
Writing in The M&A Journal, we explore these noteworthy developments private M&A.
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