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The sellers lied about the value of the company you’ve acquired. What can you do?

The sellers lied about the value of the company

What can you do if your newly acquired company unexpectedly turns out to be of less value than it was sold for?

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Merger and Acquisition (M&A) is a critical strategic move for companies looking for wealth maximization and growth. While successful M&A can lead to market share increase, portfolio diversification, potential tax benefits and shareholder value enhancement, such M&A activities can also turn into pitfalls such as buying overvalued assets/companies, clash of corporate cultures, loss of talent or loss of brand recognition [1].

KPMG conducted thorough analysis to identify the key factors influencing the success and failure of M&A deals. One of the 'hard keys' is proper due diligence, which could make up 6% success/failure rate in M&A activities [2]. Our knowledge and experience in the field shows that companies, while making every effort to perform proper due diligence, only have access to a limited amount of information that the selling party chooses to provide. Should the selling party hide essential information related to the value of the company or provide inaccurate data to you as a buyer, the deal may turn out to be a disappointment.

Luckily, you have just acquired an organization including all of its historical information. This not only includes historical financial information, but also unstructured data such as the e-mail boxes, laptops and network shares of the organization. This means that if you could organize all of that historical data, you will know exactly what the sellers did before they sold their company to you. Based on that, you may be able to claim back your rightful loss from the sellers in a legal procedure.

Now the key question becomes: how do you distill the most important pieces of evidence from this enormous amount of historical information? This is where Forensic and eDiscovery technology comes in. Using this technology, we can:

  • potentially recover deleted information, which can be important as individuals may have deleted information before they left the company;
  • process data of almost any type and any size into a single search engine. Any relevant mailbox or file share can be taken into account;
  • use advance searching techniques and machine learning algorithms to quickly find key evidence backing your claim.

We have regularly experienced that such a data-driven approach can be crucial to reclaim your rightful loss. More and more we see that the key evidence in legal proceedings comes from a digital source of information. Therefore, the investment in such evidence is often small compared to what it could bring you in court.

For more information on unstructured data analytics please contact:

Patrick Özer
Partner - KPMG Forensic Technology

Thom Eijken
Senior Manager - KPMG Forensic Technology

Yinuo Wang
Consultant - KPMG Forensic Technology

© 2020 KPMG N.V., registered with the trade register in the Netherlands under number 34153857, is a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved. KPMG International Cooperative ('KPMG International') is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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