Contracting Around Fraud Claims in Merger and Acquisition Deals

By Donald H. Tucker Jr., Clifton L Brinson and Edward F. Roche
Published by American Bar Association

Can a seller escape liability for fraud simply by including the right language in the merger agreement?

The target company looked great on paper. The data room painted a picture of a healthy, profitable company. The target company's officers gave all the right answers to the buyer's questions. But after the acquisition, things appear less rosy. The pre-purchase picture was inaccurate, and the buyer did not get what it paid for. And the buyer now suspects fraud. What remedies, if any, are available to the buyer?

The answer under Delaware law—which is the law most commonly applied in merger and acquisition deals—depends in large part on (a) whether the purchase agreement contains well-drafted "anti-reliance" provisions and (b) whether the inaccurate statements made to the buyer were contained in the representations and warranties of the purchase agreement or were made outside of the agreement (e.g., in documents provided in the course of the buyer's diligence or in response to the buyer's questions). 

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