Delaware Law Alert | When True-Ups Take Years: How to Keep M&A Purchase Price and Earnout Disputes on the Fast Track and Out of Court
When buyers and sellers agree that an independent accountant will settle disputes over purchase price adjustments (PPAs) and earnouts in M&A agreements, they expect a quick, final answer, not a lawsuit. Yet in Delaware, these disputes are increasingly landing in court. In the past, the issue has typically come up in a handful of reported Delaware opinions each year, but so far in 2026, it has appeared in at least 15 opinions. This Legal Update explains what dealmakers and their advisors need to know from these recent opinions, and how to tighten PPA and earnout dispute provisions in response.
Sending PPA and earnout disputes to an accounting firm or other expert for alternative dispute resolution (ADR), commonly called an “expert determination” or, more precisely, an “accountant true-up,” is standard practice in private M&A. Parties use it because an accountant offers financial expertise and an informal process that is faster and cheaper than going to court. But the recent surge in Delaware litigation shows that true-up provisions, as traditionally drafted, can still end up in court and expose the parties to drawn-out litigation.
Key Takeaways
- Labels matter, but authority matters more. Calling the accountant an “arbitrator” will not, by itself, make a true-up an arbitration. Delaware courts look at what the contract actually empowers the accountant to decide.
- Silence sends issues to court. Unless the agreement says otherwise, courts generally reserve for themselves issues of contract interpretation, covenant compliance, and remedies, leaving only calculations and accounting judgments to the accountant.
- Drafting can change the result. When an agreement broadly delegates earnout disputes to a qualified expert and makes that process the exclusive remedy, a court may send even efforts-covenant and definitional disputes to the expert.
- Deference has limits. Even when the contract lets the expert decide legal questions, a court may review those legal conclusions for fraud, bad faith, and improper conduct.
Why It Matters: Months Can Become Years
True-up provisions are typically designed to resolve disputes within a few months. Once a court gets involved, however, the timeline stretches to years, and the dispute often still is not over. Based on 2026 Delaware court opinions:
- PPA disputes: The median time between closing the transaction and the issuance of a court opinion was 3.2 years. In 83% of those cases, the dispute remained unresolved after the opinion because the court ordered further court or ADR proceedings.
- Earnout disputes: The median time between delivery of the earnout statement and the issuance of a court opinion was 2.1 years, and 80% of the cases remained unresolved after the opinion.
Background: How These Mechanisms Work
Purchase Price Adjustments (PPAs): A PPA moves the purchase price up or down (or “trues up” the price) to reflect changes in the target company between signing and closing. The most common metrics are working capital, cash, and debt as of closing, as well as the seller’s unpaid transaction expenses. Because these figures usually are not final at closing, the parties close on the seller’s estimate. After closing, the buyer prepares an adjusted closing statement based on the final accounting records. The seller then typically has time to object and negotiate with the buyer before either side may start a third-party ADR process.
Earnouts: An earnout bridges a valuation gap: the buyer pays the seller more if the target hits certain milestones (usually financial or performance metrics) within a set period after closing. At the end of the earnout period, the buyer typically prepares an earnout statement calculating any amount owed, which the seller may challenge. Disputes are usually negotiated or sent to a third-party ADR process.
Accountant True-Up Mechanisms: Because PPAs and earnouts turn largely on accounting records and financial statements, parties typically agree to an ADR process that sends disputes to an independent accounting firm. Traditional true-up provisions for both PPAs and earnouts share these features:
- Accounting Principles: The closing statement (for a PPA) and the earnout statement (depending on the metrics) are prepared under specified accounting principles, such as generally accepted accounting principles (GAAP), the target’s historical practices, other agreed-upon principles, or a combination of these.
- Disputed Items: The accountant resolves only the items the parties dispute and adjusts the relevant statement accordingly. Some agreements let the accountant reach its own conclusion; others limit it to the range of values the parties submitted (sometimes called a “collar”).
- Binding Determination: The expert’s determination is final and binding on the parties, except for manifest error.
- Exclusive Remedy: The dispute resolution mechanism is the sole and exclusive remedy for PPA/earnout disputes.
- Covenants: Earnout provisions typically include covenants. Seller-friendly earnouts may require the buyer to run the business within certain limits after closing, use commercially reasonable efforts to achieve the earnout, or avoid actions intended to undermine it. Buyer-friendly earnouts may let the buyer run the business in its sole discretion. The parties may also agree on whether the buyer must notify the seller of significant changes that could affect the earnout and what records the buyer must keep.
PPA provisions may also include covenants covering how the adjustment is calculated, record retention, and the seller’s right to inspect records.
How Delaware Courts Approach Accountant True-Ups
PPA and earnout disputes typically reach the courthouse in one of two ways:
- Challenging the result: The parties go through the true-up but disagree with the outcome. A party may claim the accountant miscalculated, misapplied accounting standards, or overstepped its authority by deciding factual questions or interpreting contract terms outside its expertise.
- Going around the process: A party (often the seller) sues to preempt the true-up, arguing that its claims fall outside the accountant’s authority because they raise legal issues, such as contract interpretation or covenant breaches. A seller may also seek a court declaration that its claims are really breaches of representations, which are subject to liability limits and cannot be brought through the true-up. The other side (often the buyer) may then ask the court to compel the true-up.
Since two landmark 2023 decisions (the Delaware Supreme Court’s Terrell v. Kiromic Biopharma and the Court of Chancery’s ArchKey Intermediate Holdings v. Mona), Delaware courts have interpreted ADR provisions by considering (1) whether the parties intended arbitration or a more limited mechanism and (2) the scope of the authority granted to the decision-maker. For ADRs that closely resemble a traditional accountant true-up, courts apply the analysis as follows:
1. Did the parties intend an arbitration? Courts look for clear contractual signs that the parties gave the accountant broad, judge-like powers to decide factual and legal issues, hold hearings, and issue a remedy enforceable under the Federal Arbitration Act (FAA) (or a similar state statute) that a court would have limited power to review. Without those hallmarks, a court is unlikely to treat a process built around an accounting firm resolving objections to financial statements and the application of accounting principles as anything other than an accountant true-up. Calling the accountant an “arbitrator,” describing its decision as “enforceable as an arbitration award . . . under the [FAA] or its state law equivalents,” or stating that it is final and binding will not, on its own, turn a true-up into an arbitration. Conversely, describing the accounting firm as “a neutral expert (and not an arbiter)” or similar language is strong evidence that the process is not an arbitration.
2. What exactly is the accountant authorized to decide? This is usually the decisive question, because the court must determine how the contract divides the work between the accountant and the court. Under a traditional true-up, the accountant’s authority is very narrow and the court’s is very broad. That is important because:
- Matters within the accountant’s authority get deference from the court, although a court may still review for fraud, bad faith, and improper conduct and, if contractually agreed by the parties, for manifest error; and
- Matters outside the accountant’s authority get no deference.
Under current Delaware case law, a traditional true-up provision divides decision-making authority as follows:
| Subject to Accountant Review (Court defers to the accountant’s decision) |
Subject to Court Review (Court does not defer to the accountant’s decision) |
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Generally, the accountant may decide matters within its contractual grant of authority. Based on the typical true-up provisions outlined above, this would be limited to:
Even for matters within the expert’s authority, a court may still review for manifest error (if the agreement provides for it), fraud, bad faith, and improper conduct. |
Generally, the court makes legal determinations and crafts remedies. Based on the typical true-up provisions outlined above, this would include:
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Practical Considerations: Drafting to Stay Out of Court
What can parties change in traditional true-up provisions to keep the process simple and avoid multi-year litigation? True-up provisions are creatures of contract, and parties are not bound to rely on the provisions as traditionally drafted. Instead, parties should use their contractual latitude to reduce the number of pathways to the court by clarifying key terms and procedures and expressly granting more decisional authority to the accountant.
Specifically, parties should consider the following:
1. Label the process clearly. State expressly in the PPA or earnout provision that the dispute mechanism is an accountant true-up and that the accountant acts as an expert, not an arbitrator. This generally removes much of the ambiguity that would otherwise require court review.
2. Define precisely what the accountant can decide. The scope of the accountant’s authority is the central and by far most litigated issue in PPA and earnout disputes. Traditional true-up provisions are often silent or unclear on this key aspect, opening the door to court involvement. Parties can help themselves most by surveying the true-up provision and clearly identifying what elements are and are not within the accountant’s expertise.
To assist this process, we have identified several areas parties should consider, organized by matters best resolved by an accountant, matters potentially within an accountant’s expertise, and matters that are best suited for a court.
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Matters Best Suited for Accountant Resolution Although courts are very unlikely to conclude that any of these functions are beyond the scope of an accountant, the parties should still consider spelling them out clearly in the agreement to avoid any doubt:
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Matters Potentially Within an Accountant’s Expertise Courts have commonly held that, at least based on the terms of traditional true-ups, the following areas are outside the scope of an accountant’s expertise or have differed as to when and to what extent they could be addressed by an accountant. Parties should consider these areas pragmatically on a case-by-case basis to decide whether they would be comfortable granting an expert authority and, if so, what contractual guidance or parameters should be built into the true-up provision.
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Matters Best Suited for a Court It is equally important for parties to specifically identify in the agreement what an account is not allowed to decide. These areas might include:
In some cases, a court may be the best source of a remedy, but an accountant could still make binding determinations with respect to elements of the claim. For example:
Parties should attempt to anticipate claims requiring such hybrid determinations and expressly authorize the accountant to resolve those elements within its expertise. |
3. Be clear about the interplay between the true-up provision and other remedies like indemnification and representations and warranties insurance (RWI). Many of the opinions turn on whether a claim belongs in the true-up or in the indemnification regime. Parties should state expressly that items resolved through the true-up cannot be recovered again as indemnifiable losses and that a claim being styled as a representation breach does not take it out of the true-up if it concerns the calculation of a PPA or earnout component. They should also check that the RWI policy’s exclusions for PPAs line up with that allocation, so neither side ends up without a forum or a source of recovery.
The Bottom Line
The more precisely an agreement defines what the accountant can decide, the less room there is for a court to step in. Dealmakers should treat the true-up provision as a key negotiating point, not a boilerplate provision, and involve their legal and accounting advisors early in drafting it.
End Notes
1 297 A.3d 610, No. 299, 2022 (Del. 2023), adopting the approach developed in Penton Business Media Holdings, LLC v. Informa PLC, 252 A.3d 445, C.A. No. 2017-0847-JTL (Del. Ch. July 9, 2018) (Laster, V.C.). Although Terrell did not invovle an accountant true-up (the Court interpreted the authority of a board committee to resolve disputes arising from stock option agreements), the analysis was based on Penton’s review of an accountant determination and, since ArchKey, has consistently been applied to accountant true-ups.
2 302 A.3d 975, C.A. No. 2021-0383-JTL (Del. Ch. October 3, 2023) (Laster, V.C.).
3 Terrell and ArchKey categorized ADRs across a spectrum ranging from arbitration on one end to expert determinations (an ADR involving a subject-matter expert, like an accountant, with limited authority to review factual matters within the scope of its expertise) on the other end. An accountant true-up falls in between and, in the memorable phrasing of Vice Chancellor J. Travis Laster in ArchKey, is “a beefed-up expert determination, not a slimmed down legal arbitration.” Although some opinions take the time to distinguish between an expert determination and an accountant true-up, the distinction does not seem to have substantive bearing on the analysis.
In one unusual case, the Delaware Supreme Court was asked to review what appeared to be an accountant true-up provision. Despite indicia that the parties intended a true-up, the Court held that it was an arbitration because the party advocating for true-up treatment had in its prior pleadings (before the Terrell and ArchKey decisions) been “emphatic that the parties agreed to submit the earnout dispute to arbitration.” Despite the interim Terrell and ArchKey decisions, the court decided to hold the party to its prior characterization. Fortis Advisors, LLC v. Stillfront Midco AB, 361 A.3d 43, No. 162, 2025 (Del. February 13, 2026). See Georgia Security, infra (noting the unique circumstances underlying the Stillfront decision).
4 E.g., Prosser v. PharmaLogic Holdings Corp., C.A. No. 25C-08-284 MAA CCLD (Del. Super. July 7, 2026) (Adams, J.) (“The relevant alternative dispute resolution provision is not a true arbitration provision, even though it refers to the Auditor acting as an ‘arbitrator.’ Regardless of the label the parties use for the Auditor, the Auditor’s role here is far enough along the spectrum of alternative dispute resolution provisions that it is not a legal arbitration.” (cleaned up)).
5 Conlon v. CGI Manufacturing Buyer LLC, C.A. No. N23C-11-151 EMD CCLD (Del. Super. June 15, 2026) (Davis, P.J.) (“[The ADR provision] bears the hallmarks of an expert determination. Granted, the provision states that the decision is enforceable as an arbitration award. But beyond that, [the ADR provision] reads as a clause that calls for an expert determination.”).
6 E.g., Driven Intermediate Holdings, Inc. v. Jimenez, C.A. No. 2024-0150-LWW (Del. Ch. March 31, 2026) (Will, V.C.) (“The Seller’ Representative argues that the language making the determination ‘final and binding’ renders the Independent Accountant an arbitrator. But [the ADR provision] bears the hallmarks of a run-of-the-mill Accountant True-Up Mechanism . . . .”).
7 E.g., LG Land, LLC v. Dream Finders Holdings, LLC, C.A. No. 2025-0459-MTZ (Del. Ch. April 7, 2026) (Zurn, V.C.) (“Using expert-not-arbitrator language strongly signals an expert determination.” (cleaned up)).
8 Mitchell Aircraft, LLC v. JPE Holdings LLC, C.A. No. N26C-03-049 SKR CCLD (Del. Super. July 24 2026) (Rennie, J.) (“[T]his Court explicitly distinguished between technical disputes appropriate for an expert determination—such as mathematical miscalculations or improperly implemented accounting principles—and operational disputes arising from a defendant’s alleged breach of distinct covenants governing the management of the acquired business.”)
9 Id.; ArchKey, supra (“Accountants operating within the framework of Accountant True-Up Mechanisms routinely make determinations about consistency with past [accounting] practice. The Independent Accountant can do so here.”)
10 Terrell, supra (“[A]n expert’s findings of fact will be upheld in the absence of fraud or mistake . . . .” (cleaned up))
11 ArchKey, supra (“A court need not construe every word in a provision calling for expert determination before the expert can do its work. . . . The more closely related the term or provision is to the expert’s area of expertise, the more likely it is that an expert can interpret the term without judicial assistance.”).
12 Terrell, supra (holding that a court “is not precluded by the terms of the parties’ agreement from reviewing the [expert’s] resolution . . . . Such review, moreover, is not limited to considering fraud or bad faith.”; discussing cases in which the court reviewed expert determinations that improperly included items that the agreement expressly required to be excluded).
13 Penton, supra (“The Merger Agreement does not specifically say whether or not the Accounting Firm can construe the Dispute Resolution Provision. . . . [A]n expert charged with making a narrow determination will not have authority to interpret the governing agreement unless the contract says so.”).
14 E.g., Terrell, supra (“[W]hen an [expert] must interpret the meaning of a legal document . . . that interpretation is subject to judicial review and is clothed with no presumption of correctness.” (cleaned up)); Cogent Infrastructure, LLC v. Sprint LLC, C.A. No. 2025-0486-PRW (Del. Ch. August 11, 2026) (Wallace, J.) (holding that a typical true-up provision “doesn’t authorize the accounting firm to interpret terms, to look behind the contractual definitions, or to recharacterize what was conveyed as a result of a breach of contract or misrepresentation of a term.”)
15 E.g., Viasat, Inc. v. L3Harris Technologies, Inc., C.A. No. 2024-0713-LWW (Del. Ch. September 29, 2026) (Will, V.C.) (“The [agreement] establishes an unambiguous, three-tier hierarchy of Accounting Principles for the calculations necessary to determine any adjustments to Working Capital. . . . To be clear, the court defers to the expert’s accounting determinations—such as whether an item constitutes a ‘loss’ or an ‘account receivable.’ But the [accountant] approached the Accounting Principles as a checklist . . . . Whether this approach is consistent with the text of the [agreement] presents a pure question of contract interpretation, and therefore, of law that requires no specialized expertise. [The accountant’s] interpretation . . . is afforded no deference.” (cleaned up)).
16 Compare Georgia Security Solutions, LLC v. NewCBN, LLC, C.A. No. 2025-0798-JTL (Del. Ch. August 3, 2026) (Laster, V.C.) (“The independent accountant can also interpret terms closely tied to the calculation task, but its authority goes no further. A court must decide what measuring period the Agreement requires and whether the Buyer complied with the Information Right or breached the earnout covenants.”) with Blackstone Power & Natural Resources Holdco L.P. v. Nextera Energy Transmission Investments, LLC, C.A. No. N26C-02-149 KMM CCLD (Del. Super. April 21, 2026) (Miller, J.) (holding that an industry expert “is well-suited to apply the expertise needed to resolve the disputes” over whether the buyer used “commercially reasonable efforts” to put certain projects into service because the determination required expertise in industry-specific standards and practices).
17 Compare Georgia Security Solutions, LLC v. NewCBN, LLC, C.A. No. 2025-0798-JTL (Del. Ch. August 3, 2026) (Laster, V.C.) (“The independent accountant can also interpret terms closely tied to the calculation task, but its authority goes no further. A court must decide what measuring period the Agreement requires and whether the Buyer complied with the Information Right or breached the earnout covenants.”) with Blackstone Power & Natural Resources Holdco L.P. v. Nextera Energy Transmission Investments, LLC, C.A. No. N26C-02-149 KMM CCLD (Del. Super. April 21, 2026) (Miller, J.) (holding that an industry expert “is well-suited to apply the expertise needed to resolve the disputes” over whether the buyer used “commercially reasonable efforts” to put certain projects into service because the determination required expertise in industry-specific standards and practices).
19 E.g., LG Land, supra (unlike the agreement, the parties included in the engagement letter a provision that the accountant’s determination would be an arbitral award governed by the FAA).
21 Cagle v. Pioneer Square Brands, Inc., C.A. No. N25C-07-120-EMD CCLD (Del. Super. June 15, 2026, redacted July 6, 2026) (Davis, P.J.) (“The Agreement’s language appears clear and unambiguous. If [the buyer] expects the Contribution Percentage to drop below historic levels, it must notify the [seller]. . . . The parties should provide the definition of historical levels to the [accountant] and allow it to determine if and potentially when the Contribution Percentage dropped below historical levels. . . .[Also, the seller] seeks a determination that “Revenue” is [a] legal term and defining such a term is beyond the [accountant’s] areas of expertise. . . . The [accountant] can engage in a review of these fact-intensive determinations by utilizing its own expertise, any discounts approved by [the seller], and the definitions provided in the Agreement to determine what costs should and should not be included in the Earn Out Statements.”).
22 Georgia Security, supra (“[The earnout payment] involves a limited calculation based on Recurring Revenue. The independent accountant can determine how much Recurring Revenue there was, including resolving disputes over GAAP and deciding whether particular revenue was properly excluded, deferred, diverted, or forgiven.”).
23 E.g., Second Run, LLC v. 1WorldSync, Inc., C.A. No. N25C-08-068 KMM CCLD (Del. Super. April 24, 2026) (holding that an accountant cannot interpret the term “Annual Recurring Revenue” (ARR); “While an expert may be able to interpret a contractual provision when deciding a factual dispute, there must be a question of fact to decide. . . . [T]he dispute here turns on the definition and application of the term ‘ARR,’ which the [agreement] defines. Here, the parties delegated disputes concerning calculation, they did not delegate disputes where the only question to be answered is the correct interpretation of a contractual term.” (cleaned up)).
24 ArchKey, supra (providing extensive judicial guidance in how an accountant should resolve disputes over whether the adjusted closing balance sheet was prepared in accordance with GAAP and consistent with past practices of the company and a reference balance sheet); Viasat, supra (holding that the court must review accountant’s interpretation of a three-tiered set of accounting principles).
