Liability for Providing Financial Capability Information Lawsuit

SITUATION

H.S. Grace & Company, Inc. (“HSG”) was engaged by counsel for a financial services firm that had worked with a client who sought to sell a controlling interest in his business while retaining a substantial minority position. The financial services firm introduced another client as a potential buyer and the parties negotiated for some time but failed to close. The seller incurred additional financial difficulties during these negotiations and was forced to sell the entire business. Subsequent to the sale, the value of the business rose markedly. Also, subsequent to the sale, an inappropriate business relationship was uncovered between an executive at the financial services firm and the potential buyer they had introduced. The seller sued, alleging that being forced to sell the entire business deprived the seller of the appreciation in the minority interest that was to be retained.

ANALYSIS

HSG examined the history of the seller’s business as well as various materials regarding the negotiations between the seller and the proposed buyer. HSG established that the seller had unsuccessfully sought to sell a majority of the business to other well-known buyers. HSG also established that the seller’s credit lines and financing capability would be inadequate to meet his financing requirements as a minority owner. Given step-down provisions and other means for adjusting ownership interests when one party is unable to fulfill its financing responsibilities, it appeared the majority owner would have taken over the seller’s minority interest. Also, HSG determined that certain lenders would continue to hold secured interests in the seller’s minority position, an unpleasant position for the majority owner.

RESULT

Counsel for the financial services firm utilized our Report and deposition testimony in negotiating a favorable settlement prior to the scheduled trial.

HSG Evaluates Appropriateness of Directors’ and Officers’ M&A Due Diligence

Strategic Partnership Unites Commercial Real Estate Expertise

+1.713.572.6800

+1.212.644.8620