Nixon Peabody M&A Indemnification Survey Provides Insight on Deal Terms in Robust M&A Environment

November 07, 2017

Media Relations Manager
Jaszver Bauzon

Washington, DC. Nixon Peabody’s M&A Indemnification Survey released today uncovers key trends relating to representation and warranty general survival periods, fundamental representations and warranties, exclusions from indemnifiable damages, materiality scrapes, indemnity basket and cap sizes, sandbagging clauses and other trends.

The survey analyzed the key indemnification terms of 100 publicly filed acquisition agreements from June 1, 2016, to August 16, 2017, with transaction values ranging between $100M and $4.6B. The median transaction value was $250M. The data set of publicly filed acquisitions included asset and stock purchases and merger agreements filed with the U.S. Securities and Exchange Commission in which the target was a privately held business (including subsidiaries of public companies) and the buyer negotiated an indemnification remedy for breaches of representations, warranties and covenants that continued after the closing date.

“Our survey provides a current assessment of what deal terms are market in a robust M&A environment,” said John Partigan, partner of Nixon Peabody’s Public Company Transactions practice and leader of the firm’s M&A Indemnification Survey. “Our view is that the current deal-making environment will remain robust in the year ahead, and these indemnification clauses will continue to be a key component of any acquisition agreement for a private target company.”

Survey highlights:

Indemnity Cap and Basket Size

  • Approximately 76% of deals surveyed had an indemnity cap, with a median cap size of 10%
  • The median basket size was 0.40% of the purchase price

Exclusions from Indemnifiable Damages

  • Approximately 42% of the deals surveyed excluded Consequential Damages from the definition of indemnifiable loss or damages
  • Only 8% of the deals surveyed expressly included Diminution in Value in the definition of indemnifiable loss or damages

Representation & Warranty General Survival Period

  • Approximately 77% of deals surveyed had survival period of 12 to 18 months
  • The median survival period for deals surveyed was 18 months

Materiality Scrape

  • Approximately 75% of deals surveyed included a materiality scrape provision
  • Close to half (40%) of deals surveyed included a double materiality scrape: calculating the amount of losses or damages and determining whether a breach of a representation or warranty has occurred

Copies of the full 2017 M&A Indemnification Survey are available on Nixon Peabody’s website.

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