FREE online courses on Mergers & Acquisitions - Chapter 2 - Representations

 

One very important element within the M & A Agreement is representation by both companies. Both sides must provide some warranty that what has been conveyed is complete and accurate. From the buyers (acquiring firm) viewpoint, full and complete disclosure is critical if the buyer is to understand what is being acquired. Discovery of new issues that have been misrepresented by the seller can relieve the buyer from proceeding with the merger.

 

From the seller's point of view, full disclosure requires extensive time and effort. Additionally, it is difficult to cover every possible representation as "full and accurate." Therefore, the seller prefers to limit the number of representations within the M & A Agreement. One way of striking the right balance is to establish materiality limits on certain representations. The M & A Agreement will also include language, such as "to the best of the sellers knowledge," in order to alleviate some representations.