Representations and warranties in M&A transactions

Today’s post is about representations and warranties given by sellers in M&A transactions (“Seller’s Warranties”).

Not all Seller’s Warranties are of equal importance.

Breach of different Seller’s Warranties, may affect the sale and purchase transaction in varying degree, depending on which Seller’s Warranty is breached. It may be worthwhile to categorise the Seller’s Warranties and provide for different remedies for breach of different categories of the Seller’s Warranties.

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

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

Some parties categorise Seller’s Warranties relating to business of the target company such as contracts and operation of business under another category.

Having different categories of Seller’s Warranties allow the parties to negotiate the buyer’s remedies for breach of any categories of Seller’s Warranties more effectively.

For example, the parties may agree that any breach of fundamental Seller’s Warranties is to be viewed more seriously, which would allow the buyer to terminate the SPA.

On the other hand, the parties may agree that breach of other categories of the Seller’s Warranties would give rise to other remedies for the buyer but not termination rights.

1. The effect of breach of the Seller’s Warranties may vary depending on which Seller’s Warranty that is breached.
2. The parties may want to consider different remedies for breach of different categories of the Seller’s Warranties.


This post was first posted on Linkedin on 23 August 2021.

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