When two firms plan to combine through a merger or acquisition or some other means, it is common for the parties to expect to create value through revenue synergies or cost reductions (cost efficiencies). The companies typically estimate expected synergies and cost efficiencies as part of the price discovery process. Synergies and cost efficiencies are also relevant in various litigation, investigation, and regulatory matters such as merger and acquisition reviews and antitrust litigation, post-merger and acquisition and post-asset purchase disputes, as well as company valuations, damage calculations, restructuring, solvency, bankruptcy, and breach disputes.
For example, the U.S. Department of Justice and U.S. Federal Trade Commission (Agencies) review large shifts in market concentration and often challenge a transaction. Well-supported cost efficiencies, if cognizable, can be considered by the Agencies and the courts to offset any potential anticompetitive effects of the transaction. The cost efficiencies estimated by the companies supporting the terms of the transaction and cognizable efficiencies that can be used as an offset are not the same. Synergies and cost efficiencies used to support the terms of the transaction are forward-looking business estimates, while cognizable cost efficiencies must meet certain legal criteria (Agencies' Horizontal Merger Guidelines) and must stand up to any challenges made by the Agencies.
Post-merger and acquisition and post-asset purchase disputes can occur after a transaction closes; for example, the buyer may claim that the information provided during the price discovery process was inaccurate justifying a lower price, or either the buyer or seller may disagree with the post-closing purchase-price adjustments, or the buyer and seller may disagree on the calculation of the post-transaction earn-out. Lastly, synergies are often considered in valuations related to breach-of-contract, failed-transaction, and breach of fiduciary duty disputes. They are also considered when assessing whether a reorganization is financially viable and how claims are allocated among debtors in bankruptcy proceedings.
Regardless of the type of dispute, the expert engagement is to assess the reasonableness of the magnitude of the expected synergies (cost efficiencies) and the likelihood of achieving them. We have the expertise and experience needed to thoroughly and correctly analyze and measure the magnitude of the expected synergies (cost efficiencies) and the likelihood of achieving them. Our work is based on widely-accepted and standard methodologies, frameworks, and analyses and we have been engaged by both plaintiffs and defendants in a wide range of industries in such matters.