Clause For Concern? Sandbagging Provisions In Canadian M&A

Sandbagging: To conceal or misrepresent one's true position, potential or intent, especially in order to take advantage of.

The use of express sandbagging language in M&A agreements (whether "pro" or "anti"), or the decision to remain silent, is commonly one of the most acrimonious issues faced by M&A practitioners in private acquisitions. The frequency of these provisions in Canadian M&A and the question of their enforceability are commonly discussed in light of evolving market practice and the historically limited guidance from Canadian courts.

HOW DOES SANDBAGGING WORK?

In the course of negotiating a definitive acquisition agreement, a buyer will typically extract detailed representations and warranties from the seller regarding the business to be acquired, along with an indemnity (subject to customary limitations) whereby the seller will agree to indemnify the buyer post-closing should any of the reps and warranties prove to be untrue.