Imagine this scenario: You're an M&A advisor. You represent the seller in a controlled auction. In driving the best price for the business, let's say you somehow misrepresent - to the buyers - the exact number of other buyers in the auction; or, the other buyers' exact intentions; or, the exact price or terms offered or contemplated by other buyers; or whatever auction-related details, you get the picture.

Does it matter?

Despite the traditional understanding of caveat emptor within the buyout arena, and basic M&A due diligence, the private equity firm Terra Firma Capital Partners seems to think it matters - a lot. It's suing Citibank (sell-side advisor) for fraud related to a similar scenario it alleges in Terra Firma's $6.5B purchase of EMI Group.

If Terra Firma is successful in this suit, can you fathom the number other copycat suits this will lead to by other buyers that have lost their shorts recently in deals that have gone south?

The premises in such cases could be comical -

"The advisor said that there were seven buyers, not the six we knew of!..."

"The banker said XYZ Corp. would pay 9% more than us!...so we increased our bid 15%!..."

"The seller's intermediary said that if we didn't close in 21 days the deal would be dead!...so we did…but on the 22nd day the markets tanked!..."

- if the possible outcomes weren't so scary.

Forget the outcomes, the discovery and defense costs alone would bankrupt most mid-sized shops, and seriously maim even the large ones, if this case gets copycat momentum. Every sour deal - and there are thousands of them - could conceivably be reopened.

M&A Dealmakers better stay closely tuned to the developments on this case. Read the details here:

1. Terra Firma Capital Sues Citigroup Over EMI Deal
2. Terra Firma Launches Battle with Citi
3. Citigroup Accused by Terra Firma of Fraud Over Sale of EMI
4. Private equity firm sues Citigroup

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