Corporate
Corporate Tip 6: Private Mergers & Acquisitions
Part 3: Relationship between Disclosure Letter and Due Diligence
Purpose of the Disclosure Letter
The disclosure letter addresses any issues or exceptions found during due diligence, limiting warranty breaches to these disclosed matters. It is issued at the signing of the sale and purchase agreement. If there is a gap between signing and completion, the purchaser will usually require that the warranties be confirmed again at completion to ensure no new issues have emerged. In return, the seller will seek to update the disclosure letter to avoid warranty breaches. Such updates are often being heavily negotiated.
Data Room and Automatic Disclosures
Sellers usually designate all documents in the data room for due diligence as automatic disclosures, which buyers often oppose. A common compromise is to agree on a reduced list of these documents as automatic disclosures. This balances the seller's need to share information with the buyer's need to manage risk and avoid being overwhelmed by too many disclosures.
Impact on Purchaser's Risk
Disclosures eliminate the purchaser’s warranty rights for disclosed matters, so it is vital for the purchaser to evaluate them carefully. Accepting a disclosure impacts the purchaser’s risk, and failing to review disclosures may result in missing or addressing issues too late.
Read more about the legal framework and considerations for a simple vanilla transaction under Singapore law to acquire a private limited company in SAL’s M&A Transaction Guide on Mergers and Acquisitions Transaction Guide • lawnet.com/precedents
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