In the final stretch of negotiations, the buyer is demanding a survival period of three years for general representations and warranties, along with a high indemnity cap. How do we use our operational track record and insurance options to push back on these post-close liability terms?

Question

Tyler Smith · Accepted Answer

Buyers use long survival periods and high indemnity caps to claw back part of the purchase price long after the deal is done. A three-year survival period for general representations and warranties is excessive, as most operational issues will surface within the first twelve months of integrated operations. You must limit this exposure to protect your proceeds.

Push to reduce the general survival period to twelve or fifteen months, which covers one full audit and tax cycle. To back this up, point to your clean operational history. Use your EOS data, including years of archived Scorecards, Level 10 Meeting notes, and high-scoring Business Integrity Reviews, to show that your business operates with rigorous compliance and minimal historical disputes.

For the remaining risk, insist on utilizing Representations and Warranties Insurance, or RWI. This shifts the risk of breaches from you to an insurance carrier. Although there is a premium cost, you can negotiate to split this expense with the buyer. With RWI in place, the buyer's indemnity cap can be reduced to a nominal amount, often less than one percent of the purchase price, allowing you to walk away with peace of mind.

By demonstrating a highly organized operating environment and introducing insurance solutions, you protect your hard-earned wealth from being tied up in escrow or drained by post-closing legal battles.