Tag archives: Representations and Warranties

Representations and Warranties Insurance and COVID-19 Considerations

The use of representations and warranties insurance (RWI) has grown dramatically in recent years as buyers (and to a lesser extent, sellers) have increasingly relied on RWI to allocate risks and provide other benefits in M&A transactions. The COVID-19 pandemic and its economic impacts have led to significant uncertainty for buyers, as well as for the RWI insurers underwriting their transactions. However, as we have grown more knowledgeable about the effects of the pandemic, both the M&A market and RWI insurers have adapted to the meet the changing times.

What is RWI

RWI is used by transacting parties … Continue Reading

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

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

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

LexBlog