When I first started in M&A, I found drafting and negotiating representations and warranties to be one of the most daunting aspects of the process. These clauses, often included in a long schedule towards the end of the sale and purchase agreements, are usually closely scrutinised by both parties’ legal counsel.

The representations and warranties in M&A SPAs serve the following purposes:

1. The representations and warranties in the SPAs require the sellers to disclose information that amounts to exceptions to the representations and warranties. This protects the sellers from being in breach if the exceptions are accepted by the buyers.

2. The representations and warranties provide a mechanism for risk allocation between the sellers and buyers. This is achieved by:

• providing the buyers with remedies, such as a claim for breach if the representations turn out to be false and cause the buyers to suffer a loss;
• allowing the parties to negotiate how to manage risks that arise from matters disclosed by the sellers.

3. The SPAs may provide that a breach of representations and warranties is an event of default, giving the buyers the right to claim remedies, either under the law or as specified in the SPAs.

This post first posted on LinkedIn on 28 November 2024.