Hidden Liabilities

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  • #111936

    Carolina Batista
    Participant

    In your past experiences, what are the most common hidden liabilities and how did you track them?

    #114966

    Pensiri Koomsap
    Participant

    Years ago, unlike IFRS, a retirement provision in some local GAAPs was not required. Therefore, it was always an identified issue. Another common hidden liability is legal claim. Updated legal cases against the target are a good place to start.

    #115554


    Participant

    We bought a BSA manufacturer a couple of years ago and there were some ‘spills’ on the site. We had all kinds of surveys done to make sure that there was no environmental liability. Sure enough there wasn’t. The seller kept saying in the end: I told you. Why did you spend all that money. ūüėČ

    #115682


    Participant

    A huge one in my experience is sales and use tax. In the US, this liability falls on the company selling the products such that if they did not charge the customers any sales tax (generally because they did not know they were supposed to) then they ultimately become responsible to pay the state government this uncollected tax themselves. Why this can become such a large liability is because there is generally no statute-of-limitations (meaning the government can reach back 10+ years and impute this uncollected & unremitted tax, including penalties and interest, on all your past sales). As you might suspect, sometimes this quantified liability is too great for the organization to economically handle and it kills the pending M&A transaction and sometimes the entity itself.

    #115770

    KH Tai
    Participant

    A common hidden liability can be found in the HR DD process, for instance, unpaid vacation pay, severance, and retirement payment obligations.

    #115848


    Participant

    Undeclared loans/ loans that have not been documented officially that leave the seller with a devalued company that nobody wishes to acquire as the legal ramifications become too much making the target unattractive.

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