A Deep-Dive into Mergers & Acquisitions in the Age of Mass Tort

Posted on 7th August 2023

---

Mergers and acquisitions are a part of business growth, with the former allowing businesses to join arms to increase their financial muscle power. In contrast, the latter allows businesses to buy out their competition or diversify.

While they come with advantages, they also come with the risks of buying into a company headed for a mass tort which can significantly impact your investment.

This guide looks into the complexities of mariners and acquisition in the age of mass tort and how to go about them, so keep reading for a comprehensive insight.

Understanding Mergers and Acquisitions

Mergers occur when two or more companies agree to combine operations to become a single entity. It involves negotiations among the entities, including approval by shareholders and regulatory bodies.

Mergers usually involve smaller companiescoming together to get on level ground with a typical competitor. By coming together, the smaller entities have increased their combined market share and efficiency in operations, which helps them stay competitive.

Acquisitions

Acquisitions involve buying off another company. The dominant player in the industry often employs this strategy and often aims to eliminate competition. However, it can also help diversify into slightly different areas, access new markets, or bring in fresh talent. 

Impact of Mass Tort on Mergers and Acquisitions

A mass tort occurs when many claimants file a civil suit against one defendant at the same time. For example, a water bottling company selling contaminated water affects many people simultaneously and consequently gets sued by many people at once.

Sometimes, the harm caused by a defective product is not immediate, so you could get into a merger or acquire a company while the trouble is brewing. For example, suppose the water problem in the above example causes damage over time, but the damage is only apparent after several months or years of consuming the water. You acquire the company just before the damage comes to light. As the product manufacturer, you will have liability for a problem you did not cause, which would mean you lost money in the merger or acquisition. 

In the past, class action and mass tort litigation news were not as common. Today thanks to increased awareness of consumer rights, liability lawsuits are becoming pretty common, with some mass torts settling for billions of dollars.

Strategies for Navigating Mergers and Acquisition in the Mass Tort Age

Exercising Due Diligence

Like everything else involving huge investments, exercising due diligence is key before a merger. First, investigate the target company’s past and pending lawsuits to understand how diligent it is at avoiding lawsuits.

A few liability lawsuits in the past are not necessarily a red flag because every business will have a few over time, but if they are more than what you would deem normal, you need to consider whether moving forward is the best idea. 

Engaging Specialized Legal Counsel

Your investigations alone may not be sufficient in identifying potential future litigation. Also, the risks involved are too significant to take lightly, so consider working with a lawyer specializing in tort law. Having a specialized lawyer ensures that all aspects of risk assessment are considered and matched with the best cause of action to minimize risks.

Mitigating Risks 

Once you identify potential risks, the next step is mitigating them, which can take several approaches. The first approach is negotiating an acquisition or share price that reflects the potential mass tort liability. So you buy a lower price to ensure you do not run into losses.

You can then use the balance to buy sufficient coverage for potential liability lawsuits. However, it’s important to note that insurance companies will charge high premiums for companies with a history of tort or even deny coverage if the risk is too high.

You can also agree on setting aside a contingency fund for potential mass tort refundable after a specific number of years. 

Final Words

Mergers and acquisitions are part of business growth. But they can also become a business’s worst nightmare when not handled properly. For example, when mass tort gets into the picture. However, with the right understanding, making the right choices and avoiding getting your business into a financial mess is possible.