Experts Predict Increase in Disputes Related to Venture-Backed Merger Deals

02.04.2009

SAN FRANCISCO, Feb 04, 2009 — With the economy worsening, there is an increased likelihood of disputes and litigation following the closing of mergers between venture-backed companies and their acquirers, merger experts predicted today.

“During downturns, mergers tend to get contentious, and we are definitely starting to see signs of that already,” said Paul Koenig, an M&A attorney and a managing director of Shareholder Representative Services (SRS).

As a professional shareholder representative, SRS analyzes merger agreements and manages merger transactions involving venture-backed companies every day. The firm says that it is seeing an increase in working capital disputes, claims by acquirers for damages related to breaches of representations or warranties, as well as a wide range of other issues.

There are several reasons for the increase in disputes, including:

An increase in the number of distressed companies being sold
An increased frequency of the acquirer being disappointed with results generated by the acquired company following closing due to a tough economic climate
A rise in the number of public companies that are struggling to meet earnings figures and are therefore looking more aggressively for opportunities to claw back money from previously negotiated merger agreements
Transactional specialists at large corporations who have more free time to spend on post-closing claims than they did before.

“Struggling companies typically don’t have a lot of resources available to them prior to closing, and merger-related details sometimes get missed,” explained Mr. Koenig. “When you combine this with buyers who are behaving more aggressively, it inevitably leads to a spike in post-closing disputes.”

Shareholder Representative Services (SRS) specializes in representing stockholders of venture-backed companies after their sale through a merger or acquisition. SRS has represented more than 75 venture capital firms and served as the official shareholder representative in more than 25 venture-backed M&A deals valued at over $4 billion. In the fourth quarter of 2008, SRS became the shareholder representative on 6 new M&A transactions valued at more than $500 million.

In its role as a professional shareholder representative, SRS works in a timely and effective manner to resolve the disputes and ensure that selling shareholders receive all the sales proceeds that they are due.

“This is a time when being shareholder rep is a headache if it’s not your primary job,” said Mark Vogel, a serial entrepreneur and managing director of SRS. “Being the rep involves a significant time commitment and may result in personal legal risks for a selling shareholder if they take the job on a volunteer basis.”

About Shareholder Representative Services (SRS)

Shareholder Representative Services saves venture capitalists time and money during the escrow period following the sale or acquisition of one of their portfolio companies. SRS has more experience managing the post-closing escrow period than anyone else. Since 2007, SRS has represented more than 75 venture capital firms and managed the escrow period in more than 25 venture-backed M&A deals valued at over $4 billion. Venture capitalists who have used SRS say that hiring SRS to manage the post-closing escrow period is the smart thing to do, because being the shareholder representative involves real responsibilities and risk, including the possibility of personal legal liability for individuals who take on this role.

More information: www.shareholderrep.com

	Struggling companies typically don’t have a lot of resources available to them prior to closing, and merger-related details sometimes get missed. When you combine this with buyers who are behaving more aggressively, it inevitably leads to a spike in post-closing disputes.
Paul Koenig Managing Director<br>Shareholder Representative Services