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Private equity fund wins arbitration concerning earn-out in M&A dispute


Accura's Dispute Resolution Team has represented a Danish private equity fund in an arbitration concerning the calculation of an earn-out after the private equity fund's sale of a group of companies to a foreign industrial buyer.

Part of the purchase price was to be paid by way of an earn-out based on EBITDA for a period after Closing. EBITDA was to be calculated by applying the same accounting principles applied by the group before the purchase, and the purchase agreement contained provisions stating that the EBITDA should be normalised if the buyer changed accounting principles, methods, estimates, etc.

After Closing, a dispute arose between the buyer and the private equity fund concerning the calculation of the earn-out. In brief, the private equity fund was of the opinion that normalisations were to be made in respect of a number of items as the buyer had changed accounting methods and estimates after the purchase, which had a negative effect on EBITDA. The buyer contested that normalisations were to be made, e.g. because the buyer had not changed accounting principles, methods or estimates, but had in fact adjusted items which had previously been booked incorrectly.

As the parties were unable to reach an agreement following a long negotiation process, the private equity fund instituted arbitral proceedings before the Danish Institute of Arbitration against the buyer, claiming payment of a multi-million amount. The buyer claimed dismissal of the claim as, in the buyer's opinion, the earn-out constituted DKK 0.

The arbitral tribunal made a decision in favour of the private equity fund.

In an extensive reasoning, the arbitral tribunal stated that, when calculating the earn-out, it is essential that a "like for like" principle is applied, which was e.g. supported by the standard provision in the purchase agreement stipulating that EBITDA was to be calculated by applying the same accounting principles "as consistently applied" before the transaction.

Jacob Møller Dirksen and Daniel Haue Jakobsson represented the private equity fund in the arbitration.


Jacob Møller Dirksen
Jacob Møller Dirksen

Partner, Attorney-at-Law, LL.M.

Mobile: +45 3078 6701

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