Tag archives: Representations and Warranties

Ripples of #MeToo in the M&A world: examining the “Weinstein Clause”

A recent report Bloomberg indicates the increasing relevance of buyers staying away from a “#MeToo company” in M&A transactions – i.e., a company facing sexual misconduct allegations. This does not suggest that buyers are staying away. Instead, buyers are developing novel ways of addressing the risk brought upon by a “#MeToo company.”

The first method that has seen increased prominence is by incorporation of a legal representation in the M&A agreement, requiring the target company to reveal allegations of sexual harassment. Known as a “Weinstein Clause” (also referred to as a “#MeToo rep”), this representation, which ultimately hinges on a … Continue Reading

Liability caps around the world: a global comparison

It is common around the world for representations and warranties in private M&A transactions to survive for an agreed upon period of time after closing. During this survival period, the seller is faced with the risk that the purchaser may bring an action against it for breach of a representation or warranty. There are a number of ways sellers can mitigate this risk, including negotiating a cap on their maximum liability under the purchase and sale agreement. What is considered “market standard” in terms of the use and quantum of these liability caps differs in jurisdictions around the world.

In … Continue Reading

Why have a document retention policy?

The current digital age has made it easier for companies to retain an enormous volume of documents – significantly more than a company could have afforded to keep before the advent of electronic record-keeping. In response, companies have sought to upgrade their IT systems to digitize their paper records and to allow for increased storage. These upgrades, however, are inadequate without the adoption of a comprehensive formal policy to guide a company’s record-keeping process.

Why have a document retention policy?

Besides general organization purposes, there are a few other good reasons why a company should adopt a document retention policy:… Continue Reading

IP representations and warranties in tech M&A

When negotiating an M&A deal involving a technology company, parties need to pay particular importance to the representations and warranties regarding the target company’s intellectual property (IP). In a recent Forbes article, “18 Key Issues in Negotiating Merger and Acquisition Agreements for Technology Companies”, Richard Harroch addressed some of the standard issues that come with every deal, such as specific provisions regarding consideration, escrow and holdback periods and representations and warranties regarding financial position of the target company, but also highlighted the importance of careful negotiations relating to the IP of the target company. To facilitate a smooth … Continue Reading

Seller beware: sandbagging in Canadian private M&A

What is sandbagging?

The practice of sandbagging—whereby a purchaser discovers a breach of a representation or warranty on part of the seller during negotiations but nonetheless closes the deal only to then seek indemnification for the breach—continues to plague practitioners in Canadian private M&A.

In what is frequently one of the most contentious issues in these deals, both buyers and sellers aim to safeguard their interests by shifting risk to the opposing party via pro- or anti-sandbagging clauses. Buyers will aim to insert “No Waiver” clauses which provide that knowledge of any breach does not strip the buyer of the … Continue Reading

AIG reports increased R&W insurance claims in the M&A market

AIG, in its recently published 2017 M&A Claims Report, explored the rising number of representations and warranties (R&W) claims in the M&A market by examining AIG policies written between 2011 and 2015.

Increase in R&W claims

Mary Duffy, AIG’s global head of M&A insurance, posits that the marked increase in claims could stem from buyers becoming more knowledgeable of R&W insurance policies. Darren Savage, AIG’s Asia-Pacific M&A manager, agrees that buyer familiarity, fostered by repeat business, has created sophisticated consumers who are thinking more critically.

Duffy also notes that larger deals are those facing the greatest claims … Continue Reading

Picking it up for a song: deal considerations when purchasing a distressed business

Although a growing body of evidence—from job numbers to stock price figures—suggests that the Canadian economy is set for strong growth this year, there will always be companies (and industries) that get left behind for one reason or another. Where those companies that cannot meet their obligations have otherwise attractive assets, it presents an opportunity for those with cash on hand to pick up such assets (or companies) at a discount.

However, purchasing a business or assets out of a bankruptcy or other insolvency process does present challenges that are quite a bit different from those more commonly encountered in … Continue Reading

2016: the year of sandbagging

One of the highlights from the American Bar Association’s (ABA) 2016 Canadian Private Target M&A Deal Points Study in which our firm was a key participant (the 2016 Study), was the increased inclusion of sandbagging provisions in deals. The 2016 Study saw the inclusion of sandbagging provisions in 46% of deals (up from 29% in the ABA’s 2014 Canadian Private Target M&A Deal Points Study (the 2014 Study)).

As explained in a previous post, sandbagging provisions deal with a circumstance in which a buyer asserts a post-closing indemnification claim in relation to the seller’s breach … Continue Reading

Protecting buyers in M&A transactions: trends in the use of indemnification provisions

Allocating liability between buyers and sellers for the business and operating risks of a target company in M&A transactions is key to assessing what might be an appropriate purchase price for the transaction. As a result, the indemnification provisions in a purchase agreement are heavily negotiated with buyers seeking to limit their post-closing damages and sellers seeking to limit their liability for uncertain risks.

Recent trends in the use of indemnities are revealed in the 2016 SRS Acquiom M&A Deal Terms Study (the SRS Acquiom Study) which analyzed 735 private-target acquisitions that closed in 2012 through 2015.

Separate indemnities

Continue Reading

Representations and warranties: environmental liability insurance

Buyers and sellers are using representations and warranties insurance more frequently in M&A transactions as a means to enhance bids in competitive auction processes and to limit exposure to post-closing indemnification liabilities. Representations and warranties insurance has been previously discussed on this blog generally (see here, here, and here), including how it can be beneficial to buyers and sellers in transactions by providing access to the insurance industry’s capital and allowing the transfer of certain transaction-related risks in M&A deals to the insurance market.

Representations and warranties insurance coverage can, however, be tailored to mitigate specific types … Continue Reading

ABA 2015 Canadian Public Target M&A Deal Points Study – Key Takeaways (Part 2)

As discussed in our post last week, the American Bar Association (ABA) recently came out with its 2015 Canadian Public Target M&A Deal Points Study (the Study), tracking variations in the common terms and conditions found across acquisition agreements regarding companies listed on Canadian exchanges. The Study draws upon 88 acquisition agreements for the acquisition of Canadian publicly-traded targets announced between the years of 2013 and 2014 (the Agreements).

Last week’s post summarized the Study’s key findings with respect to the target’s representations and warranties and conditions to closing. This week’s post will highlight key … Continue Reading

ABA 2015 Canadian Public Target M&A Deal Points Study – Key Takeaways (Part 1)

On January 14, 2016, the American Bar Association (ABA) published its 2015 Canadian Public Target M&A Deal Points Study. The study draws from 88 deals announced in 2013 and 2014 that targeted companies listed on Canadian exchanges. Since 2006, this publication and its companion piece on private target M&A have been released annually by the ABA’s Market Trends Subcommittee. (We wrote extensively about the ABA’s 2014 Canadian Private Target M&A Deal Points Study here and here.) Using strictly quantitative analysis, the study tracks variations in the common terms and conditions found across these transactions, which offers … Continue Reading

Webinar – M&A in 2015: Reps and warranties insurance

Buyers and sellers are using M&A representations and warranties insurance more often in transactions as a tool to enhance bids in competitive auction processes and to minimize exposure to post-closing indemnification obligations. This type of insurance is beneficial to both buyers and sellers in M&A transactions by providing access to the insurance industry’s capital and allowing the transfer of certain transaction-related risks in M&A deals to the insurance markets.

On on Thursday, March 26, 2015, Glen J. Hettinger – Partner, Norton Rose Fulbright US LLP, Scarlet McNellie – Partner, Norton Rose Fulbright US LLP, and Jay Rittberg – Americas Head … Continue Reading

Make it someone else’s problem: allocating risk in M&A transactions through insurance

During the course of an M&A transaction, it is often the case that the most hotly negotiated aspects of a purchase agreement are the representations and warranties and related indemnities. This is not surprising as these are the key devices used to address allocation of risk as between the parties, and by extension, price. While buyers want the security and protection of knowing they paid for what they thought they were buying (essentially minimizing surprises post-closing), sellers often desire a clean exit from the transaction. Parsing though these competing objectives can be time consuming, costly and may hinder a deal.… Continue Reading

Webinar – M&A in 2015: Reps and warranties insurance

Join us on Thursday, March 26, 2015 for a web seminar on representations and warranties insurance: what is it, why do you want it, and how do you negotiate it?

Register now

Buyers and sellers are using M&A representations and warranties insurance more often in transactions as a tool to enhance bids in competitive auction processes and to minimize exposure to post-closing indemnification obligations. This type of insurance is beneficial to both buyers and sellers in M&A transactions by providing access to the insurance industry’s capital and allowing the transfer of certain transaction-related risks in M&A deals to the insurance … Continue Reading

Representation and warranties insurance: 2015 outlook

The Financial Post recently published an article highlighting legal innovations from the US that may see an upsurge of use in the Canadian landscape in 2015, including representation and warranties insurance (R&W insurance).

South of the border, Law360 reported that the use of R&W insurance “exploded, with the market for the liability policy growing roughly fourfold [in 2014].” Although R&W insurance has existed since the 1990s, it was the first time that insurers “struggled to keep up with… record demand.”

R&W insurance provides protection to both buyers and sellers involved in mergers and acquisitions transactions (M&A transactionsContinue Reading

Seminar: Norton Rose Fulbright’s 7th Annual Mergers & Acquisitions School

On Wednesday, September 10, 2014 to Wednesday, October 22, 2014 from 6:30 pm – 8:30 pm (US/Central), Norton Rose Fulbright  will be presenting its 7th Annual Mergers & Acquisitions School for corporate, in-house legal, investment banking and private equity professionals in Houston, Texas.

This comprehensive program is designed for participants that desire to develop a thorough understanding of the M&A process and agreements from a legal perspective. Invited organizations will have the exclusive opportunity to enroll up to two professionals.

Class Syllabus

Wednesday, September 10, 2014

  • Confidentiality, Non-Solicitation and Non-Circumvention Agreements • Legal Structures of Transactions – Asset Acquisitions, Stock/Equity
Continue Reading
LexBlog