The buyer is pushing for an indemnification cap equal to twenty-five percent of the purchase price and is carving out fundamental representations for an unlimited duration. How do we negotiate these caps and survival periods to ensure we actually walk away clean?

Question

Tyler Smith · Accepted Answer

An indemnification cap of twenty-five percent of the purchase price is excessively high and exposes you to major post-close liability. In modern private M&A transactions, the standard cap for general representations is typically limited to ten percent or less, especially if you are using Reps and Warranties Insurance. First, push to lower the general cap to a market-rate level. Suggest a basket or deductible of one-half to one percent of the purchase price, meaning the buyer cannot claw back any money until their losses exceed that threshold. Second, address the fundamental representations, which cover ownership of shares, organization, and authority. While buyers always want unlimited survival periods for these, you must negotiate a hard cap. Insist on limiting fundamental reps to a survival period of three to five years, or align them with the applicable statute of limitations. To prepare your defense, use your leadership team to run a pre-due diligence risk audit. Assign this as a Rock to your legal and finance seats. Review your corporate records, contracts, and IP ownership to ensure your files are spotless. When you can present highly organized, verified corporate records, the buyer's perceived risk drops, making it much easier to negotiate market-standard indemnity caps and clean survival periods.