Closing Mergers and Acquisitions: The Importance of Disclosure Schedules

Having closed dozens of mergers and acquisitions, I’ve yet to encounter anyone who likes preparing or reviewing disclosure schedules.  They take a lot of time and require significant attention to detail.  I’ve had more than one client ask, “Do we REALLY need to prepare these disclosure schedules?”  The answer is a resounding “yes” – for your protection, regardless of whether you are the buyer or seller.

Disclosure schedules accompany the primary agreement signed by the parties in a business sale—typically an asset purchase agreement, a stock purchase agreement, or a merger agreement—which (in turn) refers to the disclosure schedules and what they contain.

Most disclosure schedules contain information regarding the business being sold, including lists of assets, material contracts, and the identity of employees, key customers, and key vendors.  Others contain qualifications or limitations as to specific representations and warranties being made by the seller in the primary agreement. 

While the final schedules provide the buyer with valuable information needed to operate the business and its assets post-closing, the preliminary drafts can flush out misunderstandings among the parties and potential post-closing issues that the buyer may not directly identify in due diligence.   For example, the software license agreement might be in the owner’s name but really should have been in the company’s name.  These issues are often amicably resolved by agreement of the parties before closing but become a source of contention (and possibly litigation) if discovered after the documents are signed.

Because inaccuracies or omissions in the schedules can result in a breach of the primary agreement, which most often results in liability to the seller parties, it is critical that they be complete and accurate in all material respects.  In fact, when I represent a seller, I tell them their most essential task in the transaction is ensuring their disclosure schedules are complete and accurate.

Having the parties put time into preparing disclosure schedules early in a transaction is beneficial to everyone involved.  Doing so reduces unnecessary risk and prevents contention during the negotiation process and post-closing.  

Katie S. Riles

Katie S. Riles

Associate

Author Katie S. Riles

Katie (Cannon) Riles represents businesses and business owners in a variety of matters, including entity selection, formation and governance, shareholder disputes, mergers and acquisitions, and contract negotiation, drafting, and interpretation. Katie also assists individuals in estate and succession planning, business succession planning and other legal matters.

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Posted on August 23, 2022 by Katie S. Riles