During the LOI to close phase, the buyer's legal team is pushing for a broad indemnity basket with a low deductible instead of a tipping basket. How do we structure our indemnification caps and survival periods to protect our proceeds after the transaction closes?

Question

Tyler Smith · Accepted Answer

During the intense window between the letter of intent and closing, buy-side legal teams often try to claw back enterprise value through aggressive indemnity provisions. They will push for a low deductible and a broad indemnity basket, meaning they can sue you for minor operational issues immediately after the transaction closes. They want you to guarantee everything perfectly, which shifts all the risk back to you.

You must push back by negotiating a tipping basket or a true deductible cap that is set at a reasonable fraction of the purchase price. A tipping basket means you are only liable once cumulative claims exceed a certain threshold, but you are liable for the entire amount. A true deductible is better because you only pay for the amount that exceeds the threshold.

Additionally, you need to limit the survival period for general representations and warranties to twelve or eighteen months. This ensures you are not on the hook indefinitely for standard operational risks. Use your weekly Level 10 Meeting™ to identify any potential risks that could trigger these clauses.

Your goal is to walk away with clean proceeds. Do not let the buyer's legal team turn the purchase agreement into a perpetual insurance policy for their new business. Push for a capped indemnity limit, a reasonable deductible, and a short survival period to ensure your exit remains clean.