Disclosure letter in M&S transaction

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Today’s post is on disclosure letter in M&A transaction.

A disclosure letter sets out the exceptions to seller’s representations and warranties in a sale and purchase agreement for an M&A transaction (“SPA”).

Instead of negotiating heavily on sellers’ representations and warranties in SPAs, it is common to provide in SPAs that sellers’ representations and warranties are subject to disclosure letters from sellers to buyers.

Sellers and buyers tend to spend a lot of time negotiating terms and conditions of SPAs and then rush through disclosure letters to sign the SPAs.

Carefully negotiated representations and warranties would be futile if, in the rush to finalise the SPAs for signing, the buyers inadvertently accept disclosures which they would otherwise not accept.

The scope of work of sellers’ solicitors sometimes do not include due diligence on the target companies or assets. In such instance, the sellers prepare the disclosure letters on their own (usually in agreed forms set out in the SPAs). The sellers should ensure all relevant exceptions to their representations and warranties are made in the disclosure letters.

Proper disclosures which have been accepted by the buyers may allow the sellers to discharge their liabilities for breach of the sellers’ representations and warranties.

A disclosure letter is an important document in an M&A transaction. Sellers and buyers should go through the disclosure exercise just as carefully as they would in their negotiations of the terms and conditions of the SPAs.


First posted on LInkedin on 20 December 2021.

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