Materiality scrapes in private M&A transactions

Representations and warranties in private M&A transactions are typically heavily negotiated, with sellers often attempting to qualify their representations with materiality to avoid being found liable for immaterial breaches and for immaterial damages. It is also common during the course of negotiations for parties to agree to the inclusion of indemnity baskets. These provisions provide that the seller will not be liable for a breach of its representations unless the loss suffered by the purchaser as a result of such breach exceeds a certain minimum (or, “material”) amount. The Double Materiality Scrape To counteract the seller-favourable implications of materiality qualifications and indemnity baskets, purchasers often attempt to include a double materiality scrape in the acquisition agreement. Such a clause excludes (or “scrapes”) materiality qualifiers in the seller’s representations for purposes of determining (a) whether a breach of a…

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