M&A Series Part 7: Representations and warranties

Top 10 negotiated points in a bank transaction: Representations and warranties

Editor’s note: This month, BankBeat takes a magnifying glass to the merger and acquisition activity underway in the community banking industry. Anton J Moch and Erik J. Didrikson, attorneys working in the community banking group of Winthrop & Weinstine P.A., Minneapolis, have created a 10-part series for BankBeat, to unpack the considerations bankers must take into account when negotiating a bank deal. Previous installments covered purchase pricepayment termsthe financial condition of the bankpost-closing liability, earnest money and break-up fees, and noncompetition provisions. Here is the seventh installment. 

Day 7. Representations and warranties. Today’s topic ties back to day four, so if you have not read that yet, we suggest you review that in conjunction with today’s section. That is because the representations and warranties that a selling bank offers to a buyer go hand in hand with the post-closing liability the seller offers the buyer for the breach of one of those conditions. There can be a push-pull between a buyer’s desire for the seller to stand behind the operations of the bank being sold, and the seller requiring a buyer to perform due diligence and take ownership of the acquired bank.  Important representations can include the enforceability of the loan portfolio and loan files, (but not the collectability) the current condition of any bank buildings and real estate, proper preparation and disclosure of financial statements, any undisclosed liabilities, validity of any intellectual property, and the seller’s and bank’s legal and regulatory compliance.

While a buyer will conduct some diligence on a bank, the buyer typically prefers a comprehensive set of representations from seller to disclose any present or potential liabilities as part of the sales process. The seller will frequently attempt to limit its representations and warranties to the “knowledge” of its key management, or to exclude all but “material” issues present at the bank. The parties will frequently attempt to agree on what is practical for a seller to know, and attempt to balance that against the buyer’s need for assurance that it is not walking into potential or existing liability upon close.


Anton J Moch
Erik J. Didrikson

Anton Moch and Erik Didrikson are members of the Winthrop & Weinstine, P.A., community banking group, and are some of the most active and experienced bank transaction legal advisors in the nation. Since 2014, Winthrop has served as chief legal counsel to parties completing the purchase, sale or merger of over 30 banks, bank holding companies and bank branches. Winthrop’s dedicated team of transaction attorneys is annually recognized as tier-one legal advisors to banks on bank transactions as well as corporate governance issues, capital issues, regulatory issues and a wide range of senior management legal issues. Contact Tony at [email protected] or 612-604-6671, or Erik at [email protected] or 612-604-6536.

Attend Anton’s upcoming presentation titled, “Soft” Factors to Consider When Selecting an Acquisition Candidateon Mon., Oct. 1 at the Bank Holding Company Association Fall Seminar, “Buy, Sell or Hold: More Strategies for Success,” in Minneapolis. Winthrop & Weinstine, P.A., is also proud to be a Diamond Level Sponsor at this event. To learn more or to register, visit theBHCA.org.