M&A Insights: Delaware Court of Chancery Decision Surfaces Ambiguities in Purchase Price Adjustment Concepts

Client Alert  |  June 16, 2025


A recent decision of the Delaware Court of Chancery addressed complex issues that often recur in purchase price adjustment disputes.

In a June 2, 2025 decision, Northern Data AG v. Riot Platforms, Inc.,[1] the Delaware Court of Chancery addressed points of contractual tension that tend to arise when purchase price adjustment provisions are tested in litigation.

Background:

Riot Platforms, Inc., a Bitcoin mining company (Buyer), acquired Whinstone US, Inc., a data center company, from Northern Data AG (Seller), for a mix of stock and cash, with the cash portion subject to a purchase price adjustment (PPA) under the Stock Purchase Agreement (SPA).  The SPA provided that any disputes regarding the PPA would be resolved by an independent “Accounting Expert.”  The SPA further required that the Accounting Expert’s decisions be rendered “in accordance with GAAP, in a manner and in accordance and consistent with the Illustrative Closing Statement and pursuant to the terms of this Agreement.”  Separately, the SPA provided for indemnification as the exclusive remedy for breaches of representations and warranties (with limited exceptions), subject to a cap on indemnifiable damages.

After closing, the parties submitted four main disputed PPA items to the Accounting Expert, who sided with Buyer on all counts.  Seller sued to vacate the Accounting Expert’s determinations, arguing that (i) in the case of two items, the Accounting Expert failed to comply with the SPA by applying solely a GAAP standard to the exclusion of Seller’s historical accounting practices as reflected in the Illustrative Closing Statement, and (ii) in the case of the other two items, the Accounting Expert exceeded his authority by resolving claims that should properly be considered indemnification claims for breaches of representations and warranties, rather than PPA matters.

Key Holdings and Implications:

Hierarchy of GAAP and Illustrative Statement

The Court found that the SPA created a hierarchy whereby the Accounting Expert was obligated to apply GAAP as the primary standard.  If GAAP allowed for multiple approaches, the Accounting Expert was required to determine the GAAP-compliant approach most consistent with the Illustrative Closing Statement.  However, if GAAP allowed for only one approach and the Illustrative Closing Statement was noncompliant with the permitted methodology, the Accounting Expert had to apply the approach that complied with GAAP for PPA purposes.  The Court agreed with the Accounting Expert that GAAP only allowed for a single approach with respect to the accounting items at issue, which approach was not compatible with the Illustrative Closing Statement.  The Court upheld the Accounting Expert’s determination, as the SPA provided that his resolution would be final and binding absent manifest error, and he had not committed such error in his assessment under GAAP.

Two additional points are worthy of note.  First, the SPA contained a definition of “Closing Target Company Indebtedness,” which was relevant to the disputed items.  “Closing Target Company Indebtedness” was defined as Target Company Indebtedness as of closing “as determined in a manner in accordance and consistent with the Illustrative Closing Statement.”  The relevant definition did not incorporate GAAP, thus creating a potential internal discrepancy with the Accounting Expert’s review standard.  Second, the Court noted via dicta in a footnote that requiring the PPA to comply with GAAP “can protect the buyer by providing ‘a contractual basis to challenge [an] additional payment’ where the seller’s historical practices were noncompliant with GAAP and such information is revealed after closing.”[2] This statement should presumably be read in the context of the Court’s holding that some accounting-related claims are correctly treated as indemnification claims based on a breach of representation rather than as PPA claims, as discussed below.

Role of PPA as Compared to Indemnification

The second two disputed PPA items pertained to the validity of an account receivable and an account payable reflected in net working capital. In both cases, there were factual questions about whether the receivable and payable had already been paid, and the Court addressed how the validity of such items interacted with Seller’s representations regarding the target’s accounts receivable and indebtedness.  The Court emphasized that the PPA true-up process had a “limited” role that was intended only to account for changes in the target’s business between signing and closing.[3]  The goal of the PPA was to keep all measures other than such changes consistent, “to prevent parties from extracting value for which they did not bargain.”  The Court determined that the validity of the two payments, however, turned on events that occurred prior to the relevant period and did not reflect changes in the target’s business during such period.

By contrast, the Court indicated that indemnification was the correct avenue for pursuing claims that, while they may implicate accounting matters, actually pertain to the accuracy of Seller’s representations and warranties.  Unlike PPA processes, indemnification claims required interpretation of the SPA’s contractual language, which was a legal matter.  Legal indemnification claims exceeded the scope of the Accounting Expert’s mandate under the SPA.  Furthermore, allowing representations and warranties claims to proceed under the PPA mechanism would provide an avenue to evade the SPA’s negotiated exclusive remedy provision and indemnity cap, rendering the cap “meaningless.”  Based on this analysis, the Court vacated the Accounting Expert’s determination on the two disputed items at issue.

Practical Considerations:

In light of the Court’s opinion, practitioners should consider the following when drafting PPA provisions:

  • The acquisition agreement should avoid any ambiguity relating to how GAAP, illustrative closing statements, and historical accounting practices interact, and provide expressly for any hierarchy that should control in the event of a conflict between these parameters. Phrases such as “GAAP consistent with the Illustrative Closing Statement” can lead to disputes where a buyer may claim post-closing that a seller’s historical methodology should not be permitted as a basis for the PPA because it did not comport with GAAP.  If the agreement is silent or ambiguous on whether GAAP or historical practice prevails in such a case, Delaware courts may be inclined to apply GAAP as the default, with historical practices or illustrative statements serving only to narrow the range of GAAP-compliant options.
  • Internal consistency in the SPA is critical: closing account definitions, expert review standards, and dispute resolution mechanisms must align to avoid inviting conflict among interpretive paths. For example, if an accounting methodology for calculating a particular item (such as debt or cash) is to differ from the accounting methodology otherwise applicable to items subject to the PPA (such as net working capital), deal participants should avoid using over-inclusive language that applies net working capital accounting methodology to items such as debt and cash because such language could be read to override the different treatment for debt and cash.
  • PPA disputes may involve questions regarding the validity of specific items included in the accounting process, where the seller has made representations and warranties that touch on those same matters. In such a case, courts may be inclined to categorize the dispute as an indemnification claim due to wariness of attempts to recharacterize indemnification claims as PPA disputes to circumvent indemnity caps or exclusive remedy provisions.  The issue of temporality – whether the disputed item relates to periods prior to the relevant measure date – may be significant this regard.

[1] Northern Data AG v. Riot Platforms, Inc., C.A. No. 2023‑0650‑LWW (Del. Ch. June 2, 2025).

[2] Quoting ArchKey Intermediate Holdings Inc. v. Mona, C.A. No. 2021-0383-JTL (Del. Ch. Oct. 3, 2023).

[3] The Court described the purpose of the PPA as addressing changes occurring between signing and closing.  However, the PPA in the SPA measured changes between the estimated closing statement (delivered a few business days before closing and which estimated working capital, cash, debt, and other adjustment items as of the projected closing date), and the final closing statement (which was delivered after closing but measured the relevant items as of the closing).  In other words, the PPA in the SPA was designed to true-up the estimated closing amounts presented in the estimated closing statement to the actual closing amounts and did not measure changes between signing and closing.


The following Gibson Dunn lawyers prepared this update: Robert Little, Marina Szteinbok, and Josh Barringer.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  For further information, please contact the Gibson Dunn lawyer with whom you usually work, the authors, or the leaders or members of the firm’s Mergers & Acquisitions or Private Equity practice groups:

Mergers & Acquisitions:
Robert B. Little – Dallas (+1 214.698.3260, rlittle@gibsondunn.com)
Saee Muzumdar – New York (+1 212.351.3966, smuzumdar@gibsondunn.com)
George Sampas – New York (+1 212.351.6300, gsampas@gibsondunn.com)

Private Equity:
Richard J. Birns – New York (+1 212.351.4032, rbirns@gibsondunn.com)
Ari Lanin – Los Angeles (+1 310.552.8581, alanin@gibsondunn.com)
Michael Piazza – Houston (+1 346.718.6670, mpiazza@gibsondunn.com)
John M. Pollack – New York (+1 212.351.3903, jpollack@gibsondunn.com)

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