The buyer is demanding a broad indemnity basket that includes minor operational errors we tracked on our issues list. How do we limit our post-closing exposure using our historical scorecard and operational data?

Question

Tyler Smith · Accepted Answer

Buyers often use due diligence to uncover minor operational mistakes and then demand broad indemnification clauses to protect themselves against every possible future liability. If you agree to a low indemnity basket with no deductibles, you will find yourself getting nickel-and-dimed post-close for minor operational variances that are a normal part of doing business. You must use your operational data and historical metrics to push back and establish a fair risk threshold. First, insist on a deductible basket rather than a first-dollar tipping basket. With a deductible basket, the buyer cannot claim any losses until the total value of all claims exceeds a significant threshold, and even then, they can only recover the amount above that threshold. Second, use your EOS Scorecard history and your documented issues lists to prove that these minor errors are already priced into your historical financial performance. Show that your operating margins have always absorbed these minor operational issues while still delivering consistent, highly predictable EBITDA. Under the IVS 105 framework, a business's historical earnings already account for routine operating friction. By proving that these issues are systemic, minor, and do not represent a breach of fundamental representations, you can negotiate to exclude routine operational errors from the indemnification scope entirely, ensuring you walk away from the closing table with your proceeds fully protected.