FRANCE Law and Practice Contributed by: Karl Hepp de Sevelinges, Nicolas Martin, Cyril Deniaud and Benjamin Cohu, Jeantet
In private M&A deals, arbitration clauses and mediation mechanisms are increasingly favoured due to their confidentiality and efficiency. The ICC International Court of Arbitration, based in Paris, is often chosen for cross-border transac - tions. 10.2 Stage of Deal In France, litigation can arise at various stages of an M&A transaction, but it typically occurs either pre-closing or post-closing, depending on the nature of the dispute. Each phase presents distinct legal challenges and potential conflicts, and the stage of the deal often influences how courts or arbitral tribunals address the issues. Pre-Closing Litigation • Breach of exclusivity or confidentiality: Dis - putes may arise when one party engages with third parties in violation of exclusivity agree - ments or misuses confidential information obtained during due diligence. • Failure to meet conditions precedent: Buy - ers or sellers may dispute the satisfaction of closing conditions, such as regulatory approvals, third-party consents or financing commitments, leading to termination threats or demands for specific performance. • Material adverse change (MAC) clauses: In the current economic climate, with inter - est rate fluctuations and market volatility in 2024, MAC-related disputes have become more common. Buyers sometimes seek to withdraw from deals by invoking unforeseen adverse developments impacting the target’s business. Post-Closing Litigation • Breach of representations and warranties: Once the deal closes, undisclosed liabilities, regulatory non-compliance or misrepresenta -
tion of financial health often lead to claims for damages or indemnification. • Price adjustment and earn-out disputes: Contingent pricing mechanisms often lead to disagreements over financial performance metrics and earn-out calculations, particularly in volatile sectors like technology and biop - harma. The stage of the deal heavily influences legal strategy, with pre-closing cases often seeking specific performance and post-closing cases typically pursuing damages or price adjust - ments. In urgent situations, French courts may grant interim relief measures (such as injunctions) to prevent irreparable harm, like blocking the execution of disputed clauses or suspending the deal’s closing until the underlying issue is resolved. 10.3 “Broken-Deal” Disputes In 2024 (as for previous years) the inclusion of MAC provisions in contractual documentation was often part of the negotiating points between the parties, particularly in light of ongoing eco - nomic uncertainty and market volatility. Courts have been called upon to determine whether changing market conditions or deterio - rating financial performance of the target con - stitute valid grounds for deal termination. For example, recent high-profile disputes in the tech and energy sectors have illustrated how differ - ing interpretations of MAC clauses can lead to protracted legal battles. Another common source of litigation involves disagreements over post-closing price adjust - ments or earn-out provisions. With rising inter - est rates and inflation impacting business valu -
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