M&A Indemnification Survey

November 06, 2017

Author(s): John C. Partigan

Our study analyzed 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 and a median transaction value of $250M. Our findings uncovered 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.

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

We hope you enjoy reading this year’s survey and that it adds value to your dealmaking strategies for the coming year.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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