The Deal Terms Driving M&A Disputes — and How to Draft Around Them
The factors driving M&A disputes are shifting. According to BRG’s 2025 report, macroeconomic factors as a dispute catalyst jumped from 19% in 2024 to 29% in 2025, reflecting how tariff shocks, interest rate volatility, and currency pressures now turn into post-closing conflicts.
But the real story lies in the contracts behind these disputes. BRG reports earnout disputes rose 11 percentage points in a single year. Due diligence-related issues climbed to 46% of disputes from 37% prior. Representations and warranties appeared in 34% of disputes, and indemnity provisions in 32%.
Against this landscape, practitioners must consider how to draft deal terms that reduce dispute likelihood in the first place — and how to structure dispute resolution clauses to keep resolution costs manageable when conflicts do emerge.
The purchase agreement is not merely a closing document. It is the first line of defense against post-closing conflict. The deal terms that generate the most disputes are also the most heavily negotiated, and yet they are frequently left imprecise in the rush to close. The dispute resolution clause, often relegated to the back of the agreement, is where the cost of that imprecision is ultimately paid.
Deal Terms That Reduce Dispute Risk
Earnouts and Post-Closing Obligations
Earnouts remain the most dispute-prone contractual mechanism in M&A. Deals structured during the post-COVID recovery and the interest rate spike — where valuation uncertainty was acute — are now being tested in the market. When performance assumptions don’t materialize, earnout disputes follow.
Drafting an earnout cannot be a secondary concern. Earnouts should specify objective, measurable metrics tied to the specific business, define the accounting methodology, and include operating covenants that obligate the acquirer to run the business in a way that gives the earnout a fair chance.
Rather than using vague terms like “best efforts” or “reasonable efforts,” practitioners should use precise financial metrics. For example: “EBITDA will be calculated using the same accounting policies and procedures used in the seller’s most recent audited financial statements” — not “EBITDA as reasonably determined by the acquirer.”
SRS Acquiom’s 2026 Deal Terms Study, analyzing more than 2,300 transactions, found earnout use rebounding to 24% of deals through 2025 into Q1 2026. New disputes are being structured into agreements right now, not merely clearing from prior years. The earnout provisions that generate disputes today were negotiated and signed months or years ago. The ones being signed now will generate the disputes of tomorrow. Precision at the drafting stage is the only available intervention.
Representations and Warranties
Representations and warranties appeared in 34% of M&A disputes in 2025. Reps and warranties are where the parties make binding factual statements to each other — and where imprecision is most expensive.
Knowledge qualifiers matter enormously. “To seller’s knowledge” is meaningfully narrower than “whether or not seller had knowledge.” Survival periods determine how long an acquirer can bring a claim post-closing — an 18-month survival period limits exposure far more than a five-year period. Indemnification caps and baskets limit downside but are usually met with resistance.
These provisions are negotiable. Practitioners should push back on unfavorable language rather than accepting standard form provisions. The cost of negotiation at signing is a fraction of the cost of defending a claim post-closing. When the factual foundation of the deal is imprecise, disputes are not a possibility — they are a probability.
Due Diligence and Disclosure Schedules
Due diligence-related issues were cited by 46% of BRG survey respondents as the most prevalent type of deal term in disputes last year. The problem typically stems from two sources: incomplete diligence because parties moved too quickly to close, or issues uncovered during diligence that were never properly memorialized in the purchase agreement.
If issues surface during diligence, they belong in the purchase agreement. Either the acquirer acknowledges the issue and accepts it through seller disclosure schedules, or the reps are qualified to exclude it. Vague language invites post-closing disputes.
A new fault line is also emerging: practitioners surveyed in a May 2026 Financier Worldwide roundtable identified AI-generated diligence materials as an incipient dispute source, with buyers beginning to challenge the reliability of AI-assisted analyses used during due diligence — a question courts and arbitration panels are only beginning to address.
Indemnities
Indemnities allocate post-closing risk by specifying what happens if a rep turns out to be inaccurate, who bears the cost, and under what conditions. The interplay between representations, indemnification baskets, caps, and survival periods directly affects deal value and post-closing risk allocation.
Representations and warranties insurance is now common enough that many parties assume it covers the gap. It doesn’t. Insurance provides a tool, not a solution — it is expensive, carries exclusions and deductibles, and has coverage limits that should be reviewed carefully with the client’s broker. It is a supplement to, not a replacement for, properly drafted indemnities. Treating indemnification provisions as standard form language is itself a decision — with consequences.
Dispute Resolution Design That Minimizes Cost
Even with disputes on the rise, many deal professionals treat dispute resolution provisions as an afterthought. According to the BRG survey, most respondents report disputes frequently (41%) or almost always settle (21%). Among those, 54% indicate settlement likelihood has increased compared to the prior year — statistics likely driven by escalating litigation costs, heightened sensitivity to confidentiality, and a growing preference for commercially efficient outcomes.
If most disputes settle, the goal should be to structure the resolution process so that settlement happens early and cost-effectively. Transactional lawyers should build in a structured negotiation requirement: a written exchange of letters outlining each party’s position, followed by in-person meetings between senior representatives. Some deals use a three-tiered structure — good faith negotiation first, then mediation if that fails, followed by arbitration if mediation fails.
Mediation
Mediation followed by arbitration (med-arb) structures the dispute resolution process to encourage early settlement while preserving the option to arbitrate if mediation fails. A mediation phase forces both sides to articulate their position clearly and often surfaces settlement opportunities that weren’t apparent before.
If mediation fails after a defined period — typically 30 to 60 days — either party can initiate arbitration. Mediation is most effective not at the immediate moment of dispute, but after both sides have had 60 to 90 days to assess their positions and gather documentary support. Drafting the clause to require mediation after an initial negotiation period, rather than immediately upon a dispute notice, increases the likelihood of a genuine resolution rather than an expensive preliminary skirmish.
A well-timed mediation requirement costs almost nothing to draft and can save both parties years of litigation expense. It belongs in every purchase agreement dispute resolution clause.
The Case for Arbitration
Forum choice matters significantly. BRG found that APAC and North American practitioners favor arbitration, citing confidentiality and enforceability across jurisdictions as the leading reasons. Private equity sponsors are acutely sensitive to reputational effects and portfolio company valuations. Arbitration keeps disputes out of public view — especially important when matters settle before an arbitration award is confirmed in court.
Drafting the Arbitration Clause
A well-drafted arbitration clause should specify the governing arbitration rules. For domestic disputes, the clause should reference established commercial arbitration rules that both parties understand. For international disputes or cross-border transactions, the clause should reference commercial arbitration rules designed to address the realities of arbitrating between parties in different jurisdictions governed by different legal systems.
Corporate lawyers should involve their litigation colleagues in drafting arbitration clauses rather than simply copying provisions from prior agreements. The arbitration clause is drafted once and litigated under pressure. Getting it right at signing — with input from litigators who have actually sat in arbitration hearings — is the difference between a clause that works and one that becomes the first dispute.
The Bottom Line
Ambiguity is not without cost. Yes, ambiguity may save time during drafting and help get the deal across the finish line faster. But it often creates far greater problems later. Precision before signing directly reduces post-closing conflict costs.
Practitioners who treat deal term drafting and dispute resolution design as secondary concerns will find their clients bearing the cost. Those who invest in precise drafting and thoughtful dispute resolution structure will position their clients to resolve conflicts efficiently, confidentially, and cost-effectively when they arise.
Louis A. Russo, Esq. is the founder of Russo Law LLC, a business law firm with offices in New York and New Jersey. The firm advises on M&A transactions, commercial agreements, and business disputes. This article reflects his independent analysis and does not constitute legal advice. AI tools were used to research and refine this piece; all content was independently verified by the author prior to publication.