Litigation refers to any legal dispute requiring resolution through judicial, arbitral or administrative proceedings. In financial due diligence, the comprehensive identification and quantification of all pending or threatened litigation is a critical step: unresolved disputes constitute contingent liabilities that may materialise post-closing, impacting the true value of the acquired entity. Litigation review covers commercial disputes, tax proceedings, employment claims, regulatory investigations and environmental liabilities. Material litigation is typically covered by warranty provisions in the SPA or reflected in escrow holdbacks.

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Example: due diligence on a Swiss pharmaceutical company identifies three active litigation matters: a supplier dispute (CHF 180,000, 30% loss probability), a product liability claim (CHF 420,000, 60% probability) and a tax proceeding (CHF 280,000, 40% probability). The probability-weighted expected liability of CHF 370,000 is integrated as a debt-like item in the net debt bridge, directly reducing the equity value paid to selling shareholders.

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Hectelion analyses and quantifies litigation exposure in every due diligence, working with legal counsel to assess probabilities and economic impact on acquisition price and warranties.