Disclosure letter in M&A transactions

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Today’s post is about disclosure letter in M&A transactions.

A disclosure letter is an important document in an M&A transaction, but it probably does not receive as much attention from the parties involved as the sale and purchase agreement (SPA).

A disclosure letter is a document from a seller to a buyer which sets out exceptions to the representations and warranties given by the seller in the SPA. It is common practice to provide in the SPA that the representations and warranties given by the seller will apply save as disclosed in the disclosure letter.

The preparation of the disclosure letter is sometimes left to the last stage of negotiation, just before the SPA is about to be finalised and executed.

This may be because:
-the parties are too busy negotiating the SPA
-the seller’s representations and warranties are being rigorously negotiated, which delays the preparation and finalisation of the disclosure letter.

The disclosure letter allows the seller to avoid breach of seller’s representations and warranties in respect of matters which have been disclosed in the disclosure letter.

From the buyer’s perspective, the disclosure letter may flag out issues about the target company or assets, which may affect the buyer’s decision to acquire the shares or assets.

It would be in the seller’s and buyer’s interest to go through the disclosure exercise just as carefully as they would in their negotiation of the SPA.

What has been your experience in negotiating and finalising disclosure letter?


This post was first posted on Linkedin on 20 August 2021.

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