In an M&A transaction, how can a buyer address issues discovered during the due diligence conducted on the target?

There are a few ways to address an issue:

1. Get an indemnity from the seller.

2. Reduce purchase consideration.

3. Carve-out or ring fence the risk and liability arising from the issue.

4. Make signing of the sale and purchase agreement (SPA) conditional upon the issue being remedied.

5. Make completion of the SPA conditional upon the issue being remedied.

6. Get an undertaking from the seller in the SPA to rectify the issue after completing the sale and purchase.

7. Include rectification of the issue in the buyer’s to do list for post-merger integration process, which may be done separately from the SPA.

As the last resort, the buyer has to consider aborting the transaction if the issue cannot be rectified and it is a deal breaker.

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This post was first posted on Linkedin on 26 December 2022.