If you think you've paid too much for a business, get advice, says Sam Lees, from Ashtons Legal in Bury St Edmunds
When the New York Times announced in February 2022 that they had bought the popular free to play word game Wordle for a seven-figure sum, there were a few raised eyebrows.
How could a game that was only launched a few months earlier, which has never generated any income, already be worth millions of pounds?
The answer lies in the potential of the game to help the New York Times boost its online subscription numbers, and in doing so substantially increase its revenue. Nobody yet knows whether this strategy will work, but it is a gamble that the publisher is willing to take.
There are lots of ways to value a business, so there is plenty of scope for valuations to differ. But what happens when you have agreed to buy an established business that you subsequently discover has been significantly overvalued? Do you have any right to insist on the deal being reversed and can you claim compensation where you have relied on a professional valuation or on representations made by the seller?
Your ability to take action will depend on the method of valuation that was adopted, and the terms of the sale agreed.
Legal advice at an early stage will be essential to help you determine whether any potential rights of redress may exist and if so against whom.
It will also give you the best chance of settling your grievance quickly and where possible without the need for formal court action.
If audited accounts were provided and verified by the seller, we would advise you to check your sale agreement to see if any warranties have been given to you in respect of the accuracy of the financial information provided.
Where an assessment of the ‘worth’ of a business has been undertaken by your own professional advisers and this turns out to be wide of the mark (even allowing for a reasonable margin of error), then it may be possible for you to bring a negligence claim against them instead or in addition to any other claim that you may have.