A “Litigation Tax” On Small-Cap M&A Transactions

Small-cap public M&A deals will be scrutinized by plaintiff lawyers, with litigation likely to follow, and the anticipated cost of settlement, including the disproportionately higher attorneys’ fees in the smaller deals, needs to be factored into the pricing. While acknowledging the validity of the plaintiff lawyer enterprise and the exceptional need for contingency fee arrangements in small-cap transactions, the writer says this scenario is tantamount to a tax on transactions, one that will be paid either by stockholders or the buyer.