How Does an International M&A Attorney Handle Representations and Warranties?

Financial representations generally address whether specified financial statements were prepared under the identified accounting framework and whether they fairly present the matters covered under the negotiated standard. Agreements may also contain provisions concerning undisclosed liabilities, accounts receivable, indebtedness, and changes occurring after a specified balance-sheet date.

Regulatory compliance R&Ws may address the Foreign Corrupt Practices Act (FCPA), where applicable, as well as sanctions, anti-money laundering requirements, permits, environmental obligations, and other laws relevant to the target's operations. The exact provisions should reflect the jurisdictions and regulatory regimes actually applicable to the transaction.

For businesses whose value depends substantially on technology, branding, software, or proprietary information, IP representations can address ownership, licensing rights, infringement claims, registrations, and protection of trade secrets.

Material contract representations may address the validity and status of significant customer, supplier, financing, licensing, or distribution agreements. Due diligence should also identify agreements containing change-of-control, consent, notice, or termination provisions that could be triggered by the acquisition.

Parties considering a transaction involving operations or assets in multiple countries can also review issues addressed through our Cross-Border Deals practice.

Disclosure duties, good-faith obligations, available remedies, and contractual risk allocation vary significantly among jurisdictions. The acquisition agreement therefore needs to define the parties' obligations carefully rather than assuming that the same legal standards apply in every country.

Governing-law and dispute-resolution provisions are also important. Parties should consider where disputes will be heard, whether litigation or arbitration will be used, and how a resulting judgment or award may be recognized and enforced in jurisdictions where counterparties or assets are located.

Certain foreign investments in U.S. .usinesses may fall within the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). Its jurisdiction can include certain transactions involving U.S. .usinesses connected to critical technology, critical infrastructure, or sensitive personal data.

Parties should separately determine whether a transaction falls within CFIUS jurisdiction and whether a mandatory declaration or other filing requirement applies. R&Ws can support the allocation of transaction-specific regulatory risks, but they do not replace the parties' independent obligations under applicable foreign investment rules.

For transactions raising U.S. .ational security considerations, our Foreign Investment Review practice covers related regulatory issues.

Tax representations may address tax returns, payment obligations, withholding taxes, transfer pricing, tax residency, audits, and other identified exposures. The appropriate provisions depend on the target's corporate structure and jurisdictions of operation.

Currency risk can also affect purchase-price calculations and financial representations. Agreements may specify relevant currencies, conversion dates, exchange-rate sources, and adjustment mechanisms to reduce uncertainty when transaction values or financial metrics involve multiple currencies.

Parties may negotiate materiality, material adverse effect, and knowledge qualifiers to define the scope of particular representations. A knowledge qualifier can limit a representation according to the knowledge of specified individuals, with the agreement defining whether that standard includes actual knowledge, reasonable inquiry, or another negotiated threshold.

Disclosure schedules are equally important because they identify exceptions to representations made in the acquisition agreement. In a cross-border transaction, these schedules may need to capture matters involving foreign subsidiaries, permits, employees, litigation, taxes, intellectual property, and local contractual obligations.

Survival periods are negotiated and can vary according to the transaction, governing law, category of representation, and use of representations and warranties insurance. General, fundamental, tax, and other representations may therefore be treated differently under the acquisition agreement.

Some private M&A transactions provide for limited or no post-closing survival of specified R&Ws, particularly where the transaction uses a public-style or RWI-based structure. Parties should evaluate the actual agreement rather than relying on a universal survival period.

Indemnification provisions can establish the types of recoverable losses, applicable thresholds or deductibles, liability caps, claim procedures, and other limitations. The interaction among these provisions, R&W survival, insurance coverage, and governing law can materially affect post-closing risk.

Representations and warranties insurance (RWI) can be used to transfer certain financial risks associated with covered breaches to an insurer. In a buyer-side policy, the buyer may seek recovery directly from the insurer for covered losses resulting from an insured breach.

RWI may reduce seller indemnification exposure or escrow requirements in some transactions, but it does not guarantee recovery. Coverage depends on the policy's exclusions, retention, limits, underwriting process, definitions, and other terms. Known issues identified during due diligence may also fall outside coverage and require separate contractual treatment.