What Are Representations and Warranties?
In an M&A transaction, representations and warranties (reps and warranties) are contractual statements about the condition of the business being sold. The seller makes these statements in the SPA, and the buyer relies on them as the factual basis for proceeding with the transaction.
If a representation or warranty turns out to be false or inaccurate, the buyer has a contractual claim against the seller for breach — typically resulting in an indemnification payment.
Common Categories of Representations
Seller reps and warranties typically cover:
- Corporate authorisation — the seller has the right to sell and the transaction is properly approved
- Financial statements — accounts are accurate, prepared under consistent accounting policies, and present a true and fair view
- Tax — all tax filings are current, no undisclosed tax liabilities
- Litigation — no material pending or threatened litigation
- Material contracts — key customer and supplier agreements are disclosed and in force
- Intellectual property — IP is owned or properly licensed, no infringement
- Employment — no undisclosed employee claims, benefit obligations, or key person issues
- Environmental — no material environmental liabilities
- Compliance — the business operates in accordance with applicable laws
Disclosure Schedules
Sellers typically qualify their reps and warranties through a disclosure letter or schedule, which lists known exceptions. Disclosed matters do not give rise to breach claims. Thorough disclosure is therefore both a seller protection and a buyer risk identification exercise.
Representations and Warranties Insurance
R&W insurance (also called warranty and indemnity insurance) is increasingly common in mid-market transactions. It allows the seller to reduce or eliminate its indemnification exposure post-close by transferring liability to an insurer. Buyers benefit from a solvent counterparty for claims.
Survival Periods
Reps and warranties survive closing for a defined period — typically 12–24 months for general reps, and longer for fundamental reps (title, authorisation) and tax. Claims must be brought within the survival period.
The interaction between reps, the disclosure schedule, and indemnification mechanics is among the most heavily negotiated parts of any SPA.
Related Terms
Earnout
A contingent payment mechanism in M&A transactions where a portion of the purchase price is payable to the seller only if the acquired business achieves specified financial or operational milestones after closing.
Indemnification
The contractual mechanism in M&A agreements that provides a buyer with financial remedies — typically monetary compensation — if the seller breaches representations and warranties or if specified risks materialise after closing.
SPA (Share Purchase Agreement)
The definitive, legally binding contract in an M&A transaction that sets out all terms and conditions for the sale and purchase of a company's shares, including price, representations, warranties, indemnities, and closing conditions.
SPAC
A Special Purpose Acquisition Company — a publicly listed shell company formed to raise capital through an IPO for the sole purpose of acquiring an existing private company within a specified timeframe.