The National Law Review has confirmed it: Despite the best intentions of the involved parties and the resources put into a company acquisition deal, litigations will always arise. However, the risk can be reduced through the combined use of thorough due diligence and strong representations and warranties in the purchase agreement.

Due diligence is a prospective buyer’s investigation and review of a target company or property, meant to obtain public and non-public information to ensure the target is what the buyer thinks it is. It can include inspections, interviews, and reviewing documents related to the target’s financials, legal and regulatory issues, assets, leadership, and industry. This helps the buyer avoid unpleasant surprises that could sink the deal’s profitability or require litigation. It also helps close the informational gap between a buyer and seller, which could give the buyer more leverage in negotiating a purchase agreement.

Representations and warranties are commonly used contract provisions that bind a party, often a seller, to a statement of fact and give the party to whom they are made recourse if some aspect of the target is not as it was held out to be. Although there are technical differences between representations and warranties, they are often used synonymously.

Read more about the topic in the NLR article and do not hesitate to contact us if you are considering an acquisition. Business law is our specialty.