ACQUISITION 'LOOK-BACK' PROVISIONS TO ASSURE FINANCIAL ACCURACY
The ‘Look-Back’ provision states:
The Buyer will have the right to compare revenues by client in the 12 months subsequent to a transition against comparable revenues in the twelve months prior to the transaction to verify the accuracy of historical revenues. The Buyer will also have the right to compare expenses by General Ledger line in the same periods to assure that all expenses were accurately represented by the Seller for the year prior to the transaction. If inaccuracies are found, the Seller warrants that a pro-rata adjustment will be made to the agency’s value to offset the value of the revenue shortfall or the additional expenses and the cost of the agency will be adjusted accordingly.
The purpose of the ‘Look-Back’ provision is to amend the agency value and the cost to a buyer if ON-GOING revenues have been overstated or ON-GOING expenses understated in the year prior to a transaction. The ‘Look-Back’ provision is NOT meant to correct for policies whose renewals increased or decreased from prior year, terminated or non-renewed accounts or changes in expenses driven by the decisions and actions of the buyer.
The section above is not meant to represent acceptable legal wording for a contract. Always allow your attorney to amend the wording of the ‘Look-Back’ section to fit the legal requirements of contracts in your own state.