Explore the intricate world of M&A due diligence through the lens of a high-stakes legal battle in the commercial real estate sector. This blog delves into the complexities of identifying potential risks, the impact of unforeseen challenges, and the importance of thorough investigations. Learn from a real-world case involving trade secrets and competitive tactics that underscores the essential role of due diligence in M&A transactions. Whether you’re a legal professional, an M&A specialist, or just curious about the intricacies of corporate acquisitions, this post offers valuable insights and lessons.
M&A Stories
May 27, 2024
In M&A transactions, due diligence is critical for identifying potential risks before closing a deal. A thorough investigation can lead to renegotiations, reduced purchase prices, or even walking away from a deal. However, many issues remain hidden despite rigorous due diligence, as illustrated by a 2012 bankruptcy asset sale involving two major players in the commercial real estate sector.
The case centers around a Santa Ana, California-based commercial real estate brokerage firm, once the largest independently owned and publicly traded firm in the country, which was acquired by a New York-based competitor. This buyer, having recently acquired another rival, aimed to become one of the industry’s largest brokerage and service companies. The seller’s decline was well-known, but the buyer was unaware that key employees were defecting to a global competitor headquartered in Toronto. This competitor, one of the largest commercial brokerages in North America, was led by the seller’s former CEO.
Post-closing, the buyer discovered that these employees had taken confidential information and seller employees to their new employer. This revelation led to lawsuits against the competitor and the former employees in New York and Nevada courts, alleging theft of trade secrets and unfair competition. Despite protective measures like nonsolicitation and noncompetition agreements, the seller’s secrets were compromised, resulting in a prolonged and costly legal battle.
This scenario raises an important question: Could the buyer’s due diligence have uncovered these issues before closing? The buyer’s allegations suggest a broad scheme involving numerous employees over several years. If industry rumors hinted at such activities, a more focused investigation could have been warranted.
The ongoing litigation, encapsulated in BGC Partners, Inc. v. Avison Young, Inc., highlights the complexities and limitations of due diligence in M&A transactions. While not all risks can be anticipated, thorough and tailored due diligence remains the best defense against unforeseen challenges.
Case Reference: BGC Partners, Inc. v. Avison Young, Inc. Case No. 2:15-cvRFB-EJY., United States District Court, D. Nevada, (March 31 2024).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners management, as well as professionals who share an interest in the complexities of M&A law.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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