This article is the fifth part of our private M&A deal study series which comprises six articles where we highlight guidance provided by the American Bar Association’s 2025 private M&A deal point study and dig into some key aspects of a private M&A deal in Canada.
In this article, we dig into representations and warranties in the context of a private M&A deal in Canada.
American Bar Association’s 2025 study
The American Bar Association has recently released its 2025 study which analyzes 83 acquisition agreements signed in 2020, 2021 and 2022 (being years associated with the Covid-19 pandemic) for the sale and purchase of private Canadian entities. The study (the latest since 2018) is widely recognized as a leading resource in shedding light on the question ‘what is market?’ with respect to deal terms in private M&A transactions governed by Canadian law.
Representations and warranties
Disclosure of information
A common representation and warranty is that the seller has disclosed to the buyer all material information in relation to the target entity and its business. Although, this type of representation and warranty was found in only 43 percent (up from 38 percent in the 2018 study) of the sample transactions in the 2025 study. Of those transactions, this representation and warranty was not qualified by knowledge of the seller in more than 70 percent of such transactions.
The low percentage figure for the full disclosure type representation and warranty could be explained by the fact that public companies are involved in the sample transactions, and as seller the policy of public companies is to demand that this is not included, and as buyer public companies are more willing to give up this representation and warranty given that seller based policy (i.e., the public company as buyer reasons that if it would not give the representation and warranty as seller, then it can accept not having the benefit of it as buyer).
Compliance with all applicable laws
Another common representation and warranty given by the seller is that the target entity’s business has been carried on in compliance with all applicable laws. This type of representation and warranty was found in 93 percent (up from 89 percent in the 2018 study) of the sample transactions in the 2025 study. Depending on their relative negotiating strength, sellers often attempt to qualify ‘compliance with law’ representations and warranties with reference to the seller’s knowledge. This knowledge qualification was found in only 7 percent (down from 12 percent in the 2018 study) of the sample transactions.
Trends – cybersecurity and privacy
It is increasingly common to see representations and warranties specifically dealing with cybersecurity and privacy following global attention on large scale and costly data breaches and non-compliance action taken by regulators in that space. Cybersecurity specific representations and warranties appeared in 32 percent (no comparison data from the 2018 study) of the sample transactions in the 2025 study. Privacy specific representations and warranties appeared in 55 percent (no comparison data from the 2018 study) of the sample transactions.
Timing for giving representations and warranties
In terms of timing, 51 percent (up from 41 percent in the 2018 study) of the sample transactions in the 2025 study included representations and warranties being given on signing of the transaction and repeated on completion of the transaction. 49 percent (down from 76 percent in the 2018 study) of the sample transactions provided that representations and warranties were accurate only at completion of the transaction.
Representation and warranty insurance
Representation and warranty insurance (‘RWI’) is a type of insurance offering protection to sellers and buyers from monetary loss in M&A transactions. In recent years, its use in private M&A deals has increased but is still relatively rare.
76 percent (no comparison data from the 2018 study) of the sample transactions in the 2025 study did not feature reference to an RWI policy. This may be explained by the relatively high proportion of ‘small deals’, but also a general policy by public companies to not include RWI in their deals. RWI is costly due to the premiums that must be paid and the thorough due diligence reporting by professional advisors required to satisfy underwriters to grant policies.
Of the sample transactions in which reference to an RWI policy did feature, 92 percent (no comparison data from the 2018 study) of the sample transactions provided that the buyer is responsible for obtaining the policy. But in 62 percent of such transactions both buyer and seller were responsible for contributing to the cost of the policy (in 23 percent of such transactions the buyer was solely responsible for the cost of the policy). However, the 2025 study reports that the buyer is in a majority of these transactions responsible for paying the retention amount associated with the policy i.e., the amount the insured must pay before the insurer pays out on the claim (essentially a deductible).
For assistance with your M&A deal, please contact any member of our M&A group for legal assistance.
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Liam Phipps Legal Consultant | Business Law Vancouver |
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.