Make the Deal

CHAPTER 6 Representations and Warranties

Form of Representation

The representations and warranties, which in lawyerly jargon are abbreviated to “representations” or simply “reps,” describe in detail the legal facts about the business to be acquired. They state and confirm facts regarding the business and its capital structure, as well as the assumptions that are the basis for the buyer’s evaluation of the target. Usually, they do not cover forward-looking information, such as the target’s projections.

A representation is typically in the form of an affirmative statement of fact. If the seller represents that fact, it is taking the risk that the fact is not true—depending on the exact function of the representations in the transaction, as discussed below. If the seller does not give a particular representation, then (absent another special provision) the buyer is taking the risk of not having protection on that topic, and must rely solely on its due diligence review.

A representation normally takes the form of a flat statement that confirms the absence of problems. This form governs, even if there are problems. For example, a representation may state that there is no pending litigation against the company, when in fact there is. This conflict between reality and the positive form of representations is resolved by the disclosure schedules. A carve-out to the representations allows exceptions to be identified in a separate disclosure schedule (which is discussed in more detail ...