Definition. Statements of fact about the business that the seller makes to the buyer in the definitive agreement. If a rep is breached (the statement turns out to be untrue), the buyer can seek indemnification from the seller, subject to the indemnification cap, basket, and survival period. The reps section is typically the longest section of the definitive agreement.
Standard reps cover: organization and good standing, capitalization, financial statements, undisclosed liabilities, taxes, employees and labor matters, customers and contracts, intellectual property, real property, environmental matters, litigation, compliance with laws, and other categories specific to the sector.
Reps are also increasingly insured. Reps and Warranties insurance (RWI) is now available on most lower-middle-market deals above $20M in enterprise value, allowing the seller to cap their post-close exposure dramatically by transferring the indemnification risk to an insurer. The cost is typically 2% to 4% of the coverage amount; for sellers who care strongly about clean post-close exit, the cost is usually justified.