In the highly competitive Asia-Pacific market, savvy private equity firms are increasingly using dispute lawyers to create or defend value.
A volatile macro-environment, off the back of record private equity activity in 2021, has led to an uptick in formal disputes related to closing. Post-signing, some buyers are getting cold feet or expect discounts, including by suing on the representations and warranties. Other clients are looking to enforce exits that were agreed earlier in the year.
Disputes teams are being brought in early, alongside incumbent deal counsel, to assist - on both buy and sell side - during the period between signing and closing, whatever the buyer's objectives.
We consider the value that disputes specialists can bring to the negotiation table. Subsequent articles will take a closer look at some of the key issues raised, including the specific types of disputes we are seeing, trends in the market, and pricing and allocating risk.
A competitive market
Private equity activity in Asia-Pacific reached record levels in 2021, focused on deploying record levels of dry powder, fuelled by buoyant debt markets, with FOMO (fear of missing out) on the once-in-a-lifetime opportunities thrown up by the pandemic (read more about that here). Despite global economic headwinds, the Asia-Pacific market still holds significant appeal for investors, including those seeking opportunities outside their home markets.
Despite having to navigate the initial challenges of the Covid-19 pandemic, the private equity industry raised more than $1.1 trillion in 2021, in what many are calling the golden age of private equity.
Increases the risk of disputes
Whilst it remains to be seen whether valuations will continue to reach record highs, competition will remain strong for high quality assets. The risk of making a bad decision or missing out on an opportunity can have enormous consequences. Similarly, the pressure on investors to close deals – on both the buy and sell sides – can be significant.
These risks lead to deals being done quickly, sometimes without proper due diligence, on back-of-the envelope valuations, or on unusual terms.
Disputes lawyers bring different skills to the negotiation table
We bring a different perspective to drafting. We have seen how MAC clauses are viewed by tribunals, we have a wealth of experience enforcing exit clauses, and we know what to look out for when drafting unusual conditions precedent to closing.
Between signing and closing, we recognise and exploit weaknesses in bargaining positions, distil large amounts of data and create contentious correspondence which gets people back to the negotiating table. The right narrative is instrumental in getting deals across the line or winning a dispute, whether the objective is to persuade a recalcitrant buyer to close the deal, or to get a bullish seller to discount the purchase price.
Increasingly, we are called upon to create strategy roadmaps and talking points for ongoing negotiations, leveraging the threat of formal proceedings. Understanding the industry dynamics, and the perspective on both sides of the dispute, gives us the opportunity to hit the right tone and help get deals across the line, even when one party gets cold feet. And, if the dispute cannot be resolved without formal proceedings, we have deep institutional knowledge of the key arbitral centres and courts in the region.
With golden opportunities come heightened risks. We help private equity firms to de-risk their investments, with the benefit of seeing how disputes play out through the courts and arbitral tribunals. We use language, data and narrative effectively - in correspondence and meeting scripts - to bring counterparties back to the table and achieve results.
As disputes counsel, we are witness to how these risks can manifest in formal proceedings, and how they are viewed by arbitral tribunals. Investors looking to save time, costs and reputations engage us to work alongside their deal counsel to help them navigate and resolve disputes sooner.
If you can see trouble brewing, feel free to get in touch.