In litigation over a purchase or merger agreement, there is often a fine line between breach of contract and fraud. When a party’s representation or promise to perform does not come to fruition, is it merely a failure to fulfil contractual obligations? Or can the other party sue for fraud, potentially undoing the acquisition or, at a minimum, unlocking broader categories of damages?
This question is far from hypothetical. Most post-merger litigation involves claims that the acquired entity hid or misrepresented key features of its business during the due diligence period. Whether it be that the acquired company has few users than it claims, overstated its revenue or its value, misrepresented the ownership of IP, or skirted regulatory requirements, a recurring cause for buyer’s remorse is that an acquisition looked a lot more promising in the data room than it does on the acquirer’s balance sheet.
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