During the negotiation of our definitive purchase agreement, the buyer is demanding a high indemnity cap and an extended survival period for general representations and warranties, which leaves us with significant post-close liability. How do we negotiate these terms down to protect our hard-earned sale proceeds?

Question

Tyler Smith · Accepted Answer

The definitive agreement is where buyers attempt to shift the operational risks of the business back onto your shoulders long after you have handed over the keys. An excessive indemnity cap or an overly long survival period means you cannot truly move on, as a portion of your sale proceeds remains in jeopardy. You must aggressively limit this post-close exposure.

Start by establishing standard market benchmarks as your absolute ceiling.
- First, push to limit the general indemnity cap to no more than ten to fifteen percent of the purchase price. Anything higher is unreasonable for standard operational representations.
- Second, negotiate the survival period for general representations down to twelve to eighteen months. This gives the buyer a full audit cycle to discover any historical issues, which is more than enough time.
- Third, insist on a deductible or a basket. A basket acts like an insurance deductible, preventing the buyer from clawing back money for minor, low-value issues until the total claims exceed a specific threshold.

Use your internal compliance records and your historical Business Integrity Review to shut down their arguments. If you have run a clean, transparent sale process using the Step by Step Exit model, you have already proven that your compliance, taxes, and operational risks are fully documented and resolved. If the buyer still insists on high caps to cover specific risks, propose using Representation and Warranty insurance. This transfer of risk to a third-party insurer protects your cash at close while giving the buyer the peace of mind they demand.