November 21, 2017

Survey: M&A Indemnification Terms

This recent Nixon Peabody survey reviewed key M&A indemnification terms contained in 100 publicly filed acquisition agreements involving private company targets entered into between June 2016 & August 2017.  Here are some of the findings:

– Approximately 76% of deals surveyed had an indemnity cap, with a median cap size of 10% & a median basket of 0.40% of the purchase price
– 43% of deals excluded breaches of “fundamental reps” from the indemnity cap & 20% excluded breaches of the tax rep
– Indemnification was the exclusive remedy in 80% of the deals surveyed
– Approximately 77% of deals surveyed had survival period of 12 to 18 months
– The median reps & warranties survival period for deals surveyed was 18 months; 60% of the deals did not specify a survival period for covenants
– Approximately 75% of deals surveyed included a materiality scrape provision & 40% included a double materiality scrape
– 75% of deals were silent on sandbagging; the remaining 25% contained pro-sandbagging language

Transactions in the survey included asset purchases, stock purchases and mergers, and had values between $100 million and $4.6 billion. The median deal size was $250 million.

John Jenkins