All too often, business owners do not appreciate the significance of warranties and representations, and covenants in a definitive asset or stock purchase agreement, and the impact that such matters can have on the purchase price paid. Equally important is the survival period attached to each of these warranties and representations and covenants.
Almost without exception, every agreement has some escrow or holdback mechanism to secure performance under that agreement consistent with the warranties and representations and covenants. The way in which these items are worded can be the difference between the owner walking away with his entire anticipated purchase price or losing a significant portion to cover damages for breach of these matters.
I realize that lawyers are constantly poked fun at for being word smiths, and that legal terminology is a jargon unto itself. However true that may be, the owner or the buyer will want someone who understands the nuances of that language so that they end up with the deal that they thought they had bargained for. Skilled practitioners are invaluable and account for a fair and reasonable purchase price.
After spending a life time building a business so that it is capable of funding an owner’s retirement, it is troubling to see the dissipation of the purchase price because of carelessly worded provisions within the agreement.
In summary, and although this blog has been limited to a discussion of the impact of poorly worded phraseology on warranties and representations and covenants, this caveat applies to the entire agreement. There is no substitute for an artfully worded agreement by an experienced team of advisors.