As a junior lawyer, the schedule on representations and warranties given by sellers (“R&W”) was the part I disliked the most when drafting sale and purchase agreements for M&A transactions.

I think it is safe to say that M&A lawyers don’t draft R&W from scratch. Usually there are precedents to refer to. However, as a first year lawyer, trying to make sense of the precedents when drafting the R&W was not exactly an enjoyable experience.

Some of the factors to consider in drafting R&W given by sellers in M&A transactions:

1. Value of the transactions
The R&W for a deal worth seven figures or more would definitely be more extensive than the R&W for a deal of a hundred thousand dollars.

2. Is the target company or assets in a sector which is heavily regulated?
R&W for an insurance or telecommunication company would look very different from a retail company.

3. What matters to the buyer?
For example, did the buyer decide to acquire the shares because of the technology or customer base of the target company? If so, the R&W should ensure those areas are appropriately covered.

4. Does the nature of the business mean that there are certain areas which would typically be covered by certain R&W, which would be irrelevant for other business?
R&W relating to ownership of vehicles and real properties are relevant when the target is a logistics company but may not be the case for a company providing online services.

5. Has the seller provided any verbal R&W which influence the buyer’s decision to acquire the shares or assets?
If so, these should be included in the SPA.

6. What is the basis used to arrive at the purchase price?
For example, if the purchase price is arrived at by reference to profits, there should be R&W in relation to matters which may affect profitability.

7. Are there any gaps or findings from due diligence which should be addressed as R&W in the SPA?

8. Is the buyer involved in the operation and management of the company?
If so, the seller is likely to push back on extensive R&W relating to the operation and management of the company.

9. How is the relationship between the parties?
Where the parties are friendly terms, they may agree to minimum R&W.

What would you add to the list?

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This post was first posted on Linkedin on 19 January 2022.