A buyer’s central problem is that the seller knows the business and you do not. Everything in an acquisition — due diligence, warranties, indemnities, conditions, retentions — exists to close that gap or to price it. The mistake buyers make is relying on warranties to do work that due diligence should have done.
Four Things to Insist On
Proper due diligence with real access, not a curated folder. Where a seller resists disclosure, that resistance is itself information. Warranties that cover what actually matters to you — and the disclosure letter read as carefully as the agreement, because a warranty disclosed against gives you nothing. Conditions dealing with the consents you genuinely need before completion, particularly landlord consent and any change-of-control approvals, rather than an assumption they will follow afterwards. And restrictive covenants on the seller, appropriately drawn — if you are buying goodwill and a customer base, a seller free to open next door has sold you considerably less than you paid for. On structure: buyers generally prefer an asset purchase so liabilities can be left behind, but contracts then need consents, licences may not transfer, and employees transfer automatically. The deciding factor is frequently the seller’s tax position, so your accountant should be involved on your side too.
What Warranties Do Not Cover — and What Should Stop You
Warranties protect less than buyers assume, for three reasons. Disclosure carves out anything properly disclosed, so the protection is only as good as what was not disclosed. Limitations — negotiated caps on total liability, time limits for claims, and thresholds below which nothing is recoverable — mean a moderate problem may simply fall through. And recovery: a warranty claim against a seller who has spent the proceeds is a judgment rather than money, which is why a retention held on completion, or an indemnity for a specific identified risk, is frequently worth more than a page of general warranties. As for findings that should genuinely stop a deal: unquantifiable Revenue or regulatory exposure on a share purchase; a business whose value rests on customer contracts that are unwritten, terminable at will or carry change-of-control rights; title problems or a lease the landlord will not consent to assigning; key-person dependency where the departing person is the business and no handover or covenant is offered; undisclosed litigation; and a seller who will not warrant something they should plainly be able to stand over — that refusal usually means something. None is automatically fatal, but each should change the price, the structure or the conditions. If a finding changes none of them, ask why you are ignoring it.
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