Delaware M&A buyers: When to Utilize Two-Way Anti-Reliance Clauses

When buyers and sellers come together in an M&A deal where the seller stays involved in the business post-sale, there’s always a risk of fraud claims based on statements made during negotiations. Recent Delaware court cases highlight the importance of anti-reliance clauses in purchase agreements to limit this risk.

Anti-reliance clauses, also known as non-reliance clauses, are now common in Delaware M&A deals. These clauses state that parties rely only on the express representations in the purchase agreement, not on outside statements or representations. This protects against fraudulent claims that rely on statements made outside of the agreement.

Typically, sellers ask buyers to agree to anti-reliance clauses, but it’s less common for buyers to ask the same of sellers. However, when sellers have a continuing interest in the business, like through an earnout or equity participation, the risk of post-closing fraud claims increases. In such cases, buyers should ensure sellers also agree to anti-reliance clauses to mitigate this risk.

Recent Delaware opinions highlight the importance of these clauses. In cases where earnout payments didn’t materialize, courts found that buyer assurances during negotiations were specific enough to induce reasonable reliance by sellers. Without anti-reliance clauses in the agreements, buyers could be held accountable for statements made outside of the agreement, leading to fraud claims.

In another case, due to the absence of an anti-reliance clause, sellers were able to proceed with fraud claims based on projections shared by the buyer during negotiations that later turned out to be inaccurate. This underscores the importance of mutual anti-reliance clauses to protect both parties in M&A deals.

In conclusion, buyers should carefully consider the inclusion of anti-reliance clauses in purchase agreements, especially in deals where sellers maintain a stake in the business post-sale. This step can help safeguard against potential fraud claims and ensure a smoother M&A process for all involved parties.