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Heiko Ziehms is a senior managing director at FTI Consulting. He focuses on international arbitration and litigation and advises clients on economic, accounting and valuation issues. He has worked on some of the largest and most complex corporate disputes in Europe with values up to several billion euros and is experienced in giving oral expert testimony. He is the author of the books M&A Disputes and Completion Mechanisms (Wolter Kluwer, 2019) and M&A Disputes: How They Happen, How to Resolve Them, How to Avoid Them (Wolter Kluwer, forthcoming 2023). The views expressed herein are those of the author and not necessarily the views of FTI Consulting, Inc, its management, its subsidiaries, its affiliates, or its other professionals.
What attracted you to the field of arbitration?
The variety of challenging corporate finance problems and the complex and international nature of the work, among other things. Wallace Sayre said that disputes in academic life can be so bitter because the stakes are so low. In arbitration, the stakes are usually high. The quality of ideas matters to the outcome.
Which key qualities and attributes do successful expert witnesses need to possess?
First and foremost technical expertise, a clear sense of where the area of expertise ends and the commitment to remain within it at all times. Other than that, integrity, communication skills, reliability, being quick on their feet, being well prepared, and the ability to withstand intense scrutiny and examination.
What trends are you observing in commercial disputes, and in M&A disputes more specifically?
I’d make four observations.
First, consider the environment of only the last three years: a record M&A market in 2021 with very high valuations in some sectors has led to a wave of post-M&A disputes, driven by disruption and volatility – the pandemic, the war in Ukraine, the energy crisis, an aggressive return of inflation, the end of the low-interest rate environment, shocks to supply chains and a banking crisis. Many acquisition targets have fallen short of the expected returns that had been priced into bids, especially in the industries most affected by volatile energy prices or disruptions to supply chains. Similarly, some sellers have been disappointed as a result of much-lower-than-expected earn-out payments. Disappointment breeds disputes.
Second, and in the same context, disruption and volatility have caused some buyers to walk away from deals, despite signed SPAs, with or without material adverse change clauses. Where this is in breach of contractual obligations it can raise complex damages valuation questions.
Third, warranty and indemnity insurance is now very common in European M&A transactions, and this has started to change some standard contractual clauses, including damages clauses. It is also changing some aspects of the work we do as experts in M&A disputes.
Lastly, looking ahead, data privacy, cybersecurity, climate litigation and emissions disclosures may be emerging as important areas of M&A disputes.
Can you describe the intersection between forensic accounting issues and damages valuation?
There are a number of ways to look at that question. One is that forensic accounting often identifies previously unknown liabilities or uncovers overstated earnings or other accounting errors (intentional or otherwise). Damages valuation then asks: how do these omissions and accounting errors translate into damages? That can be a very complex question that goes to the valuation-relevance of accrual accounting. One way to view valuation (including that of damages) is as a type of pro-forma accounting for the future, often based on past trading. Forensic accounting frequently supplies the input factors.
Is there anything that is potentially different about damages quantification in M&A disputes?
Yes. In general, when considering a claim for breach of contract, the actual position is often relatively straightforward to establish as it’s readily observable, and what’s more difficult to determine is often the counterfactual position had the contract not been breached. In warranty breach cases in M&A disputes, on the other hand, it is the actual position that can be more difficult to establish – for example, what the target company is actually worth, given a breach. This is because the parties have usually valued the no-breach (as warranted) position, thinking that was the reality. A related question that can arise in these cases is whether the price paid in a transaction corresponds to the value as warranted.
Can you talk about which other parts of FTI you collaborate with most frequently?
Being part of FTI means having access to unparalleled expertise in areas ranging from all types of valuations and forensic accounting to statistics, delay analysis and restructuring, to name only a few. It is often at the intersection of disciplines that damages valuation is complex – take delay and quantum, an area we work on with joint teams of engineering and damages experts. I also frequently work with colleagues in our technology, strategic communications and restructuring practices as well as industry experts, for example from our energy or telecoms groups.
The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals. FTI Consulting, Inc., including its subsidiaries and affiliates, is a consulting firm and is not a certified public accounting firm or a law firm.