→ M&A · Sub-expertise
Representations & warranties (W&I / liability guarantee) are the mechanism that protects the buyer against risks not disclosed at the time of the sale. Their negotiation crystallises much of the tension in the deal: scope of representations, caps, deductibles, duration, security for the guarantee. We draft balanced representations & warranties, calibrated on the actual risks identified in due diligence.
→ What we cover
Representations on the target: title to the shares, validity of the accounts, absence of major litigation, compliance with laws, completeness of contracts. The core set of representations & warranties applicable to all transactions.
Warranties dedicated to the risks identified in due diligence: tax liability, pending litigation, environmental compliance, contractual dependence. Reinforced cover with no cap or deductible.
Capping mechanisms (cap, generally 10 to 30% of the price), deductible and claim threshold (de minimis) to avoid minor disputes and preserve the economic balance.
Standard duration of 18 to 36 months for general representations, up to the limitation period for tax and employment matters, and a longer period for environmental matters. Starting point and calculation of the periods.
Mechanisms to secure the guarantor's solvency: escrow, on-demand bank guarantee, price retention, parent-company guarantee, or warranty & indemnity insurance.
Coordination with the disclosure letter, which attaches known items to the representations & warranties (W&I / liability guarantee) to exclude them from claims. Additional limitations: buyer's knowledge, tax deductions, double recovery.
→ Our approach
01
Mapping of the risks arising from due diligence: tax, employment, environmental, contractual, litigation. Ranking by criticality to calibrate the specific representations.
02
Drafting of the general and specific representations, coordination with the SPA, integration of the schedules (list of contracts, litigation, authorisations).
03
Negotiation of the financial parameters: cap, deductible, de minimis, duration. Seeking the balance between buyer protection and predictability for the seller.
04
Putting in place security for the guarantee (escrow, on-demand bank guarantee, W&I), finalisation of the disclosure letter, signing alongside the SPA.
→ Who we help
24-month representations & warranties (W&I / liability guarantee) on the general representations, extended to the limitation period for tax and employment matters, with a specific uncapped warranty for the environmental compliance of an industrial site.
Negotiation of a reduced cap (10-15% of the price), W&I insurance to limit the founder-seller's exposure and allow a rapid distribution of the funds.
Notification of a post-closing claim, drafting of the enforcement notice, amicable or contentious negotiation with the guarantor, mobilisation of the escrow or the bank guarantee.
Adaptation of the mechanism to an intra-family transfer: restricted representations, lighter warranties, but retention of specific warranties on the identified risk areas.
→ Q&A
Generally 18 to 36 months for the general representations. For tax and employment matters, the duration is aligned with the limitation periods (often 3 to 4 years). For environmental liabilities or specific litigation, longer durations are possible.
The standard cap is between 10 and 30% of the sale price. A reduced cap (10-15%) is common in fund-to-fund transactions, and a higher one (up to 100%) for high-risk sales. Specific warranties (title, tax) may be uncapped.
Several tools: escrow (deposit of part of the price for 12 to 36 months), on-demand bank guarantee, price retention, parent-company guarantee, or recourse to warranty & indemnity insurance which substitutes for the seller.
It attaches to the representations & warranties (W&I / liability guarantee) the items known to the seller that are communicated to the buyer before signing: these items fall outside the scope of claims. It protects the seller while requiring active transparency. Its drafting is as important as that of the representations & warranties.
→ Go further
Let's talk. We respond within one business day to qualify your transaction and direct you to the firm's most suitable lawyer.
Get in touch→