The seller’s attorney, who had no M&A expertise, wanted to ambiguize* the Reps & Warranties. Illustrative example: instead of saying “Seller has the right to sell this company,” they wanted “To the best of his knowledge, Seller has the right to sell this company.”
The problem if a breach of this very fundamental representation occurred is that the Buyer would then have to prove that the Seller didn’t know. This would be impossible, so effectively the representations are worthless.
Recommended actions:
1. Arrange a roundtable meeting with sellers and both sides’ attorneys to review everything and ensure alignment. Don’t let the seller outsource all-things-legal to their counsel, but force them to take a stance.
2. Hire a mutually trusted third party counsel with M&A expertise to mediate.
3. Obtain R&W insurance (which is often a good idea anyway). Typical cost of this is low six digits. The process is a pain, but it’s really effective to create alignment and peace of mind. John Matthew Lumelleau is your go-to resource for this insurance.
*New word, just invented by me.
