M&A: Categorising vendor’s representations and warranties

Categorising M&A reps and warranties
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One of the most negotiated points in a M&A transaction is the buyer’s remedies for breaches of vendor’s representations and warranties (“Vendor’s WarrantiesV”) in a sale and purchase agreement (“SPA”).

The various representations and warranties given by the vendor, if breached, may affect the transaction in varying degree. It may be worthwhile categorising the Vendor’s Warranties and deal with the breaches differently for different categories of the Vendor’s Warranties.

The buyer and vendor would usually agree on a set of fundamental Vendor’s Warranties, which if breached, would affect the subject matter of the transaction. Typically, these relate to matters such as ownership of shares and due incorporation and valid existence of the target company.

Another categorisation typically used is tax representations and warranties given that the tax position of a company may adversely affect the company.

Having various categories of Vendor’s Warranties allow the parties to negotiate the buyer’s remedies for any breaches more effectively, such as whether the breach is fundamental enough to warrant termination of the SPA or whether the buyer should have other remedies.

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This post was first posted on Linkedin on 28 December 2020.

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