Buying a company is an expensive proposition. In addition to the purchase price, there are legal expenses, financial adviser fees and sometimes, financing costs. These expenses will arise regardless of whether the purchase turns out to be a good deal or not. Through the due diligence process and representations and warranties of the seller in the sale agreement, the buyer should obtain some protection against incurring substantial expenses to acquire a company and then learning that the acquired company is not what it appeared to be.
But what about a buyer that walks away before a definitive agreement? That buyer could still have incurred significant expenses in the due diligence process. If that buyer believes it was defrauded in the due diligence process, can it shift responsibility for due diligence expenses to the seller? The Supreme Court’s decision inRAA Management v. Savage Sports Holdings , No. 577, 2011 (Del.), suggests that will be difficult unless the seller negotiated for the accuracy and completeness of information provided by the buyer in the due diligence process.
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