Classification: Situation-Specific
Section: Representations and Warranties of Seller
Negotiation Time: Minimal to Moderate
Transaction Costs: Insignificant
Major Impact: Risk Management

Customers and Suppliers

What is This? The Representations and Warranties of Seller portion of the Agreement is used to save the Buyer time and money. Rather than require the Buyer to go through third parties to find certain information, the Seller provides the information and must reimburse the Buyer for any Losses it suffers if the information is false or misleading. Here, the Seller provides information regarding the Business’s customers and suppliers.

The Middle Ground: In this portion of the Agreement, the Seller discloses certain details relating to its material customers and suppliers. Specifically, the Seller lists the identity of customers and suppliers who have reached a set monetary threshold (e.g. customers that have spent more than $1 million annually for both of the prior two years), as well as the amounts spent annually for each customer or supplier. The Seller also represents that the customers and suppliers listed have not indicated an intent to end or significantly alter their relationship with the Business.

Purpose: The Buyer wants to know the identity and financial details for the Seller’s top customers and suppliers, and while most will obtain that information during exploratory due diligence, including the information in the Agreement serves two important functions. First, it creates distinct penalties for misrepresentations and, additionally, it provides some assurance that the top customers and suppliers do not plan to jump ship. This representation is always useful, but it is most important when (1) a few customers and/or suppliers make up a major portion of the company’s revenue and/or supply streams, or (2) there is a lack of trust between the Buyer and Seller.

Buyer Preference: Regardless of the level of trust between Buyer and Seller, the Buyer wants to include this section if the Business has a small number customers or suppliers that make up a hefty portion of its sales or supply. The Buyer also wants as much assurance as the Seller can give regarding future plans of major customers and suppliers, but as a practical matter any such assurances will usually be qualified based on the Seller’s knowledge. Rather than qualifying the lists based on a monetary threshold, the Buyer may prefer to see a list of the top ten or twenty customers or suppliers depending on the level of customer or supplier concentration.

Seller Preference: The Seller will likely try to exclude this provision altogether, especially when customer and/or supplier relationships are solidified by contractual agreements. If there is significant customer or supplier concentration in the Business, the Seller may include the disclosures but try to exclude the representations regarding the future relationship between the parties. In any event, the Seller will not want to make representations about what third parties will or will not do in the future unless those representations are qualified based on the Seller’s knowledge.

Differences in a Stock Sale Transaction Structure: This section does not need to be altered based on the structure of the transaction. However, in situations where customers or suppliers have contracts with the Business and the sale is structured as an asset acquisition, the Buyer will want to make a point early on in the negotiation process to ensure that those contracts will be assigned to the Buyer.


We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.