Tag archives: indemnification

Part 1: Sandbagging in M&A – negotiating strategies

What is “sandbagging”?

The concept of sandbagging is simple: one party has a strength, an advantage, or is in a position of power, which is concealed or downplayed in order to take advantage of the other party later. In the context of M&A deals, this is when the buyer learns the seller has breached a term in the agreement prior to closing, but does not raise the issue until after closing when it seeks indemnification from the seller for the breach.

In the course of negotiating M&A deals, it is in the buyer’s best interest to include a pro-sandbagging provision … Continue Reading

2016: the year of sandbagging

One of the highlights from the American Bar Association’s (ABA) 2016 Canadian Private Target M&A Deal Points Study in which our firm was a key participant (the 2016 Study), was the increased inclusion of sandbagging provisions in deals. The 2016 Study saw the inclusion of sandbagging provisions in 46% of deals (up from 29% in the ABA’s 2014 Canadian Private Target M&A Deal Points Study (the 2014 Study)).

As explained in a previous post, sandbagging provisions deal with a circumstance in which a buyer asserts a post-closing indemnification claim in relation to the seller’s breach … Continue Reading

Protecting buyers in M&A transactions: trends in the use of indemnification provisions

Allocating liability between buyers and sellers for the business and operating risks of a target company in M&A transactions is key to assessing what might be an appropriate purchase price for the transaction. As a result, the indemnification provisions in a purchase agreement are heavily negotiated with buyers seeking to limit their post-closing damages and sellers seeking to limit their liability for uncertain risks.

Recent trends in the use of indemnities are revealed in the 2016 SRS Acquiom M&A Deal Terms Study (the SRS Acquiom Study) which analyzed 735 private-target acquisitions that closed in 2012 through 2015.

Separate indemnities

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Make it someone else’s problem: allocating risk in M&A transactions through insurance

During the course of an M&A transaction, it is often the case that the most hotly negotiated aspects of a purchase agreement are the representations and warranties and related indemnities. This is not surprising as these are the key devices used to address allocation of risk as between the parties, and by extension, price. While buyers want the security and protection of knowing they paid for what they thought they were buying (essentially minimizing surprises post-closing), sellers often desire a clean exit from the transaction. Parsing though these competing objectives can be time consuming, costly and may hinder a deal.… Continue Reading

Trend report on indemnification provisions: what will matter to buyers and sellers in 2014

Indemnification provisions are an essential component of any M&A transaction and, for obvious reasons, buyers and sellers have opposite agendas in drafting the scope and substance of their inclusion in a transaction agreement. Buyers are motivated to protect themselves from post-closing monetary damage, and the type and extent to which they can indemnify themselves is often the subject of extended negotiation in M&A transactions. A review of three related indemnification provisions commonly included in transaction agreements, and their prevalence in 2013, helps to set the stage for the coming year.

Basket clauses

Parties to a transaction agreement will often negotiate … Continue Reading