Disclosure Letters in Dutch M&A Transactions
In Dutch M&A transactions, warranties play an important role in allocating risk between buyer and seller. Sellers provide warranties about the target business, while buyers rely on those warranties when deciding to proceed with the acquisition.
The disclosure process is therefore a key part of Dutch transaction practice. A seller will usually seek to limit warranty exposure by disclosing known issues against the warranties in the SPA. These disclosures are typically included in a disclosure letter and supported by documents made available in the data room.
For earlier articles in this series, see the M&A Insights: Dutch Deal Practice for Buyers, Sellers and Investors, such as Buying a Dutch Company: Share Deal or Asset Deal?, Locked Box vs Completion Accounts in Dutch M&A and Earn-outs in Dutch M&A.
What is a disclosure letter?
A disclosure letter is a document delivered by the seller in connection with the SPA. It identifies matters that qualify or limit the warranties given by the seller.
If a matter has been fairly disclosed, the buyer will generally no longer be able to claim that the relevant warranty was breached. The disclosure process therefore shifts certain identified risks back to the buyer.
In Dutch M&A practice, the disclosure letter is often heavily negotiated because it directly affects the seller’s post-closing liability exposure.
Specific disclosures versus general disclosures
One of the main negotiation points is whether disclosures must be specific or whether general disclosures are sufficient.
Buyers usually want disclosures to be clear, specific and linked to the relevant warranty. Sellers often prefer broader disclosure language and wider reliance on the data room.
A vague disclosure may not always provide effective protection. In practice, Dutch transaction parties often negotiate whether a disclosure was sufficiently detailed for the buyer to understand the nature and scope of the issue.
The more specific the disclosure, the lower the risk of later disputes about whether the matter was properly disclosed.
Data room disclosures
Dutch M&A transactions typically involve a virtual data room containing corporate, financial, contractual and operational information about the target company.
Sellers often seek to include a clause stating that all information in the data room is deemed disclosed against the warranties. Buyers usually resist this approach and argue that general data room uploads should not automatically qualify all warranties.
As a result, many Dutch SPAs distinguish between:
- documents merely uploaded to the data room; and
- matters specifically disclosed in the disclosure letter.
This distinction can become very important in post-closing warranty disputes.
Why the disclosure process matters
A disciplined disclosure process benefits both sides.
For the seller, it reduces the risk of post-closing claims and creates a clearer liability position. For the buyer, it helps identify known risks before completion and allows those risks to be reflected in pricing, indemnities or deal structure.
The disclosure process also forces both parties to focus on the actual legal and operational risks within the target business. In practice, many difficult negotiation points only become visible once the disclosure exercise begins.
Common disclosure topics
In Dutch M&A transactions, disclosures often relate to matters identified during due diligence. These may include ongoing litigation, customer or supplier disputes, regulatory issues, employment matters, tax risks, intellectual property ownership, data protection, financing arrangements, shareholder disputes and compliance matters.
Not every disclosed issue has the same effect. A minor disclosed issue may simply qualify a warranty. A more material risk may require a specific indemnity, purchase price adjustment, condition precedent or separate closing deliverable. The disclosure process should therefore not be treated as a technical annex, but as part of the wider commercial risk allocation in the transaction.
Practical takeaway
Disclosure letters are a central part of Dutch M&A risk allocation. They determine which risks remain with the seller and which risks shift to the buyer before completion.
The key issues are specificity, clarity, data room references and consistency between the SPA, disclosure letter and due diligence findings. A disciplined disclosure process significantly reduces the risk of post-closing disputes.
About Dirk de Waard
Dirk de Waard is a Dutch corporate and M&A lawyer focusing on mid-market and cross-border transactions. He advises founders, investors, management teams and international businesses on acquisitions, investments, governance and post-closing disputes in the Netherlands.
Questions about disclosure letters, warranties or M&A transactions in the Netherlands? Send an email to dirk.dewaard@viottalaw.com.
