Choosing the wrong decision maker for an M&A purchase price dispute can affect the outcome before anyone reaches the merits. When a dispute includes both technical accounting questions and legal or contractual questions, the transaction agreement should allocate each issue to the appropriate decision maker and establish the sequence in which the determinations will be made.
The proper decision maker depends on the nature of the issue. An independent accountant may be well suited to calculate working capital under an agreed methodology, but poorly suited to decide whether the transaction agreement excludes the disputed account from the calculation altogether. An accountant acting as an expert should generally resolve technical accounting matters and perform the resulting calculations, while a court or arbitrator should generally decide contract interpretation, procedural compliance, legal liability, and breach.
Example: How One Purchase Price Adjustment Can Create Several Different Disputes.
Assume a buyer claims that $2 million of recorded revenue should have been treated as deferred revenue, reducing closing working capital by $2 million. That single adjustment may present several different questions.
- Did the applicable accounting principles require the revenue to be deferred?
- Does the transaction agreement give GAAP priority over the seller’s historical accounting practices?
- Does the contractual definition of Working Capital include or exclude deferred revenue?
- Did the buyer identify the adjustment before the objection deadline, and does the adjustment properly belong in the true-up process rather than a claim for breach of a financial statement representation?
The accountant should generally decide the first question: whether the applicable accounting principles require the revenue to be deferred and, if so, the amount of deferred revenue resulting from that treatment.
The remaining questions concern contractual rights and procedure. A court or arbitrator should determine the accounting hierarchy required by the transaction agreement, whether deferred revenue is included in Working Capital, whether the buyer timely preserved the adjustment, and whether the disputed item belongs in the purchase price true-up process at all.
Why Does the Decision Maker’s Authority Matter?
The title assigned to the decision maker does not determine the scope of that decision maker’s authority. The transaction agreement should identify whether the dispute will be decided by an expert, an independent accountant, an arbitrator, or a court and define the issues each decision maker is permitted to resolve.
In Terrell v. Kiromic Biopharma, Inc., the Delaware Supreme Court explained that an expert generally has limited authority to resolve a specific factual or technical dispute within the expert’s specialized knowledge, while an arbitrator may receive broader authority to decide legal and factual issues necessary to resolve the controversy. In ArchKey Intermediate Holdings Inc. v. Mona, the transaction agreement referred to the independent accountant as an arbitrator, but the Court of Chancery treated the accountant as an expert because the accountant’s authority was limited to specified purchase price issues.
The practical point is that the transaction agreement should define the authority granted to each decision maker rather than rely on labels such as expert, accountant, or arbitrator.
How Should Mixed Accounting and Legal Disputes Be Sequenced?
When a purchase price dispute involves both contractual and accounting issues, the transaction agreement should establish the order in which the issues will be resolved.
Contract interpretation and procedural disputes should generally be decided before the accountant performs any calculation that depends on the outcome. For example, a court or arbitrator may first determine whether the buyer preserved the adjustment, whether the disputed item falls within the applicable purchase price definition, or whether the claim belongs in the true-up process. The accountant can then perform the accounting analysis using the contractual boundaries established by that decision.
The transaction agreement should also address what happens while the threshold dispute is pending. The agreement should state whether the accountant must suspend the calculation, whether the court or arbitrator may issue a limited ruling on the threshold issue, and whether the accountant must follow that ruling in completing the purchase price determination.
A clear sequencing provision reduces the risk that the parties will spend substantial time disputing who has authority to act before they reach the calculation that actually determines the purchase price.
What Should a Court or Arbitrator Decide?
The role of the court or arbitrator is to determine the contractual and legal boundaries of the dispute. The accounting expert can then perform any calculation required within the boundaries established by the transaction agreement and the applicable ruling.
Examples of purchase price disputes the court or arbitrator should decide include:
- Whether an objection notice was timely and sufficiently detailed.
- Whether a party may introduce a new adjustment after the contractual deadline.
- Whether a defined term includes or excludes the disputed item.
- Whether the disputed item belongs in the purchase price adjustment process or the indemnification process.
- Whether the asserted conduct breached a representation, warranty, covenant, or other contractual obligation.
- Whether the alleged breach caused recoverable Losses.
- Whether the claim satisfies applicable indemnification requirements, including notice, baskets, caps, and survival periods.
- Whether the asserted conduct constitutes fraud or another legal claim outside the accounting adjustment process.
What Should the Accountant Decide?
The accounting expert should resolve the technical accounting issues assigned under the transaction agreement and calculate the resulting purchase price adjustment using the agreed accounting principles and methodology. The accounting expert should not determine broader questions of contract interpretation, procedural compliance, or legal liability unless the transaction agreement expressly grants that authority. Northern Data AG v. Riot Platforms, Inc. illustrates the distinction, with the Court of Chancery upholding the accounting expert’s technical revenue recognition determination while separately addressing legal issues outside the expert’s contractual mandate.
Examples of purchase price issues the accounting expert should decide include:
- Whether revenue was recognized in the proper period.
- Whether an item should be classified as a current asset or current liability.
- Whether a reserve for inventory, bad debt, returns, or another account was calculated using the permitted methodology.
- Whether deferred revenue, accrued expenses, or other financial statement items were measured correctly under the applicable accounting principles.
- Whether the mathematical calculation of Working Capital, Cash, Indebtedness, Transaction Expenses, EBITDA, revenue, or an earnout is correct.
- What amount results after the agreed accounting treatment is applied.
How Should the Dispute Resolution Provision Be Drafted?
The transaction agreement should address the following points:
- Accounting hierarchy. Identify the transaction-specific accounting principles, illustrative calculations, historical practices, and GAAP that the expert must apply, and state the order of priority among them.
- Scope of materials. Define the documents, submissions, workpapers, and other information the expert may consider, including whether the expert may conduct any independent investigation.
- Scope of authority. Limit the expert to the disputed accounting issues and calculations assigned to the expert, including any agreed limitation to the values or positions submitted by the parties.
- Legal and procedural issues. Assign contract interpretation, procedural compliance, breach, fraud, indemnification claims, and other legal issues to the designated court or arbitrator.
- Sequencing. Establish which decision maker acts first when the accounting calculation depends on a threshold contractual or procedural determination.
- Review and payment mechanics. Define the standard of review, payment deadlines, interest, allocation of fees, and release of any adjustment escrow after the determination.
- Necessary interpretation. State whether the expert may interpret financial definitions to the extent necessary to complete the calculation. A complete prohibition on contract interpretation may be impractical if the expert cannot apply the agreed methodology without determining how a financial definition operates within the purchase price formula.
Conclusion
The appropriate decision maker for an M&A purchase price dispute depends on the nature of the issue. Technical accounting matters generally belong with the accounting expert, while contract interpretation, procedural compliance, breach, and legal liability generally belong with a court or arbitrator.
The transaction agreement should define the authority of each decision maker, establish the accounting principles the expert must apply, and provide sequencing rules for disputes that involve both accounting and legal issues. Clear drafting can prevent the parties from spending substantial time litigating the scope of the dispute process before anyone reaches the purchase price calculation.
Otherwise, the first post-closing dispute may concern not the purchase price, but who has the authority to decide it.
By Joseph R. Luna
Primary Authorities
Terrell v. Kiromic Biopharma, Inc., 297 A.3d 610 (Del. 2023)
ArchKey Intermediate Holdings Inc. v. Mona, 302 A.3d 975 (Del. Ch. 2023)
Northern Data AG v. Riot Platforms, Inc., C.A. No. 2023-0650-LWW (Del. Ch. June 2, 2025)