When an important M&A contracting strategy goes by the
moniker "sandbagging," it is safe to assume the strategy
is controversial.
The concept of sandbagging is relatively simple. In
jurisdictions that allow M&A purchasers to sandbag sellers, a
buyer has the right to rely on the verbatim text of the sale
agreement and does not need to show it relied on the accuracy of
the representations and warranties in the sale agreement in order
to sue if one of the representations or warranties is inaccurate.
At its extreme, a purchaser can have specific knowledge prior to
closing that a representation or warranty is inaccurate, keep that
information to itself, and then sue for breach of that
representation the day after closing. While the concept has been
challenged as both inequitable and unethical by certain
commentators and courts, some courts have endorsed the theory by
relying on strict rules of contracting.
