EBITDAC, Civil Liability, and New Paradigms

COVID-19 has led companies to patch-up financial reporting by adding estimates of pre-COVID-19 profits to their EBITDA. Recently, COVID-19 prompted measuring-equipment manufacturer Schenck Process, for example, to add back €5.4 million, resulting in an adjusted EBITDA of €18.3 million (termed, unsurprisingly, as ‘EBITDAC’ [1]). This may spark other U.S. corporations to use an EBITDAC metric in initial public offerings, which may result in litigation under Section 11 of the Securities Act of 1933 (Securities Act) over alleged omissions or material misstatements. This post seeks to analyze the use of EBITDAC against the civil liability provisions of Section 11 … Read more