Seller’s Representations and Warranties in M&A: Three Things to Avoid

Mergers and acquisitions
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1. Representations and warranties about the future.

The seller should avoid providing representations and warranties in respect of future events due to uncertainty about the future. Further, after the seller disposes of the seller’s shares, the seller may no longer be in control of the target company and hence, not in a position to ensure the representations and warranties continue to be true.

Example: The Company has not supplied services which are, or were, or will become, in any material respect, faulty or defective.

2. Representation and warranties about things not within the seller’s control.

Example: No other party to any contract to which the Company is a party is unlikely or unwilling or unable to fulfil its contractual obligations.

3. Widely drafted representations and warranties Without definitive parameters, the seller may be caught off guard by breach of representations and warranties which the seller has not contemplated.

Example: The statutory books and books of account and other records of whatsoever kind of the Company are up-to-date and maintained in accordance with all applicable legal requirements.

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This post was first posted on Linkedin on 19 November 2020.

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