Tax Issues With M&A Reps, Warranties, and Indemnifications

June 28, 2022 at 1:00pm2:30pm (EDT)

Representation and warranty provisions are critical components of M&A deals. The use of representation and warranty insurance has drastically changed the landscape of how these important deal terms are negotiated. Counsel and advisers must carefully consider these provisions and their tax implications when structuring purchase agreements.

In a traditional M&A transaction, a seller agrees to indemnify the buyer for breaches of the seller's representations and warranties, but this indemnification obligation is often subject to caps, exclusions, and time limits. Typically, the indemnity is backed by an escrow of a portion of the proceeds payable at the closing; however, most M&A deals now incorporate representation and warranty insurance to outsource the risk of loss from a breach of representations and warranties by sellers.

Although representation and warranty insurance is not a solution for every transaction, these insurance policies can be favorable for buyers and sellers. They may be the only protection for a buyer in a no-indemnity transaction. Counsel and advisers must understand key tax considerations for representation and warranty provisions in purchase agreements and reps and warranties insurance policies.

Attorneys Gregory Kaden, Jonathan Stein, and Alexandria Williams will discuss critical tax provisions relating to purchase price payments and adjustments and key tax considerations for representation and warranty insurance.

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