So here’s a fun fact about selling a business: nobody warns you that the paperwork has a horror-movie sequel. You get through the financials, the due diligence, the endless calls with your accountant. Then your lawyer clears his throat on a Tuesday afternoon and says, “About that pending lawsuit…” and suddenly your stomach is doing that thing it did before your first driving test.
I’ve been on that side of the table. Not literally, but close enough to watch grown adults age five years in a week. Here’s what I learned about getting a deal done when there’s litigation hanging over the company like a rain cloud at a picnic.
Why Pending Litigation Scares Buyers (And Why It Shouldn’t Always)
Buyers hear “lawsuit” and picture a bottomless pit of legal fees. Fair enough. But here’s the thing: plenty of healthy companies get sued. It’s the not-knowing that kills deals, not the dispute itself.
Your job as the seller is to replace fear with facts. Do that and you’ll be shocked how many buyers stay at the table.
Disclosure: The One Place Where Oversharing Is a Virtue
Bury the lawsuit and it will find its way out. Usually at the worst possible moment, like hour eleven of a fourteen-hour closing day.
Keep these rules taped to your fridge:
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Disclose early in due diligence. Not after the buyer falls in love with your business.
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Include copies of the pleadings, demand letters, and any court orders.
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Explain your legal strategy in plain English. Skip the Latin.
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Give the buyer’s counsel direct access to yours. More transparency equals less panic.
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Update the disclosure as the case moves. Silence reads like concealment.
A buyer who feels lied to walks. A buyer who feels informed negotiates. Big difference.
Structuring the Deal So Nobody Gets Burned
This is where it gets interesting. You don’t have to eat the whole risk yourself. There are tools:
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Escrow holdbacks. Set aside a slice of the purchase price until the case resolves. Feels painful, works great.
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Purchase price adjustments. Agree on a formula now for what happens if damages land.
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Indemnification caps. Cap your exposure, set a survival period, and define what triggers a claim.
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Earnouts. Tie part of your payout to future performance. Buyers calm down when your money stays on the line.
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Representation and warranty insurance. Worth asking about. It shifts risk without turning the negotiation into a hostage situation.
One more thing. Get your counsel to model the worst-case scenario with actual numbers. Vagueness breeds pessimism. A spreadsheet breeds calm.
Building Buyer Confidence When the Court Date Is Looming
Nobody buys a company out of charity. They buy because the story makes sense.
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Share how you’ve provisioned for the litigation in your books.
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Point out any insurance coverage that applies.
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Walk through your track record of operating through the dispute. The business kept running, right?
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Bring your attorney to a call. Buyers trust advisors more than they trust reassurances.
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Offer a limited escrow if it gets the deal across the line. A little skin in the game goes a long way.
Confidence is contagious. So is desperation. Guess which one closes deals?
The Part Nobody Tells You
Honestly, most litigation-related deal stress comes down to timing. Buyers want certainty. Lawsuits don’t deliver certainty. Your job is to shrink the gray area to a manageable size, then let the professionals do their jobs.
Prepare properly and the lawsuit becomes a line item in the purchase agreement instead of a deal killer. That’s a win. That’s the whole game.
So, anyone else out there wrestling a deal with a legal cloud overhead? Tell me I’m not the only one who’s lost sleep over indemnification clauses. Misery loves company, and apparently so does dealmaking. 🙂