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What are Representations & Warranties in M&A Transactions?

Representations and warranties (R&W) are statements made by the seller (and sometimes the buyer) in a merger or acquisition agreement to provide assurances about various aspects of the business being sold. These statements cover a wide range of topics, including financial condition, legal compliance, ownership of assets, and operational status. They serve to inform the buyer about the true state of the business and protect against potential risks or misrepresentations.

How Representations & Warranties Work

In an M&A transaction, representations and warranties are typically included in the purchase agreement. The seller makes assertions about the business, such as the accuracy of financial statements, the absence of undisclosed liabilities, and the validity of intellectual property rights. The buyer may also make representations and warranties about its ability to complete the transaction. These statements are usually subject to a survival period, during which the buyer can bring claims if the representations and warranties prove to be false or misleading.

Example

In a hypothetical M&A transaction, the seller might provide the following representations and warranties:

• The financial statements provided are accurate and fairly represent the company's financial position.
• The company has no undisclosed liabilities or pending legal actions.
• All necessary permits and licenses for the business operations are valid and in good standing.
• The company owns all the intellectual property necessary for its operations, free from any infringement claims.

If any of these representations and warranties are found to be untrue after the transaction closes, the buyer may seek indemnification from the seller for any resulting damages or losses.

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