The rise of arbitration in post M&A disputes

International

The CMS European M&A Study 2022 provides an insight into the M&A-market and the use of arbitration in resolving disputes resulting from M&A deals. This study covers over 400 shares and assets deals across Europe that CMS provided advice on and shows the most recent trends in arbitration in M&A disputes.

Choosing arbitration to resolve M&A disputes is a trend that continues. The reasons for agreeing to arbitration include the desire to avoid court cases in jurisdictions where proceedings are often time consuming and the outcome sometimes unpredictable, as well as the desire to prevent a public process. Large international (and listed) companies prefer their proceedings to stay out of the public eye and to be dealt with in relative privacy. A factor that is considered one of the strongest driving forces for choosing arbitration is the need for an award that is enforceable in multiple jurisdictions.

The perceived downsides of arbitration are relatively high costs, and concerns that potential efficiencies are not actually achieved in practice. However, considering the continued popularity of arbitration clauses in M&A deals, these drawbacks apparently do not outweigh the benefits in the eyes of users.

Despite a small 1% decrease in deals with an arbitration clause in 2021 (33% of the deals had such clauses in 2021 and 32% in 2020), recent years have shown a steady increase. The current popularity of arbitration as a dispute resolution mechanism is still nearly consistent with its long-term popularity over the course of the previous eleven years (2010 – 2020) where the use of arbitration averaged 33%.

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When choosing arbitration, parties can choose the rules governing their arbitration proceedings. They can choose between national or international rules of arbitration (e.g. UNCITRAL or ICC Rules). In 2021, the use of national rules to govern arbitration (68%) extended its popularity over the use of international rules when compared with the 11-year average of 60% (2010 to 2020). This might be caused by the result of the pandemic and the stronger focus on national interests.

Since 2016, transaction value has been a determining factor for the use of arbitration as a dispute resolution mechanism. However, in contrast to previous years, transaction value was not this year a determining factor for the use of arbitration as adispute resolution mechanism , as 32% of small deals 39% of medium sized deals (EUR 25m to EUR 100m)  30% of large deals contained an arbitration clause,

In 2021, the application of national arbitration rules wasfrequently chosen for all deal sizes (70% of EUR 100m plus deals; 65% of deals with a value between EUR 25m and EUR 100m and 69% of deals below EUR 25m). It will be interesting to see whether in 2022 deal size will again be a determining factor when choosing national rules of arbitration over international rules, as it was until 2021.

Our experts Jean-Fabrice Brun (CMS France), Bart-Adriaan de Ruijter (CMS Netherlands) Mathias Schlingmann (CMS Germany), Sarah Vasani (CMS UK), and Franck Rohart (Goup Secretary General of Europcar Mobility Group) will discuss important aspects and recent trends in arbitration in M&A disputes during the Paris Arbitration Week from 28 March to 1 April 2022.