A Little Knowledge Can Be A Dangerous Thing: Sandbagging Clauses In Acquisition Agreements

In an M&A transaction, the purchaser will usually conduct due diligence on the target, gaining insight into its operations and uncovering any risks. Such risks are then typically dealt with by means of negotiated vendor representations, warranties, covenants and indemnities. But what happens if the purchaser learns, prior to closing, that the vendor has breached one of these negotiated representations but goes ahead and closes the deal anyway, without saying anything? In such a case, what rights do the purchaser and vendor have? Specifically, is the purchaser offside if it fails to inform the vendor of the perceived misrepresentation prior to closing and then, once the deal is closed, turns around and demands indemnification?