In M&A transactions, it’s common for the sellers to provide warranties to the buyers as assurance to the buyers on the condition of the target companies or business.

However, the following sellers may argue that they should not be required to provide warranties or are willing to provide limited warranties only to the buyers:

1. Institutional shareholders and other shareholders who are not involved in the day-to-day running of the business of the target companies.

2. Directors of the target companies who do not hold any shares.

3. Trustee sellers who do not have detailed knowledge of the business of the target companies.

In such instances, the buyers and sellers may agree to, amongst others:

• due diligence on the target

• rectification of all material issues discovered during due diligence prior to completion of the sale and purchase

• adjustment to purchase price

• structuring the payment of purchase price to address the risk.

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This post was first posted on Linkedin on 23 March 2023.