By Chris Hewitt and Jayne Juvan

The indemnification provisions in M&A agreements have evolved dramatically over the past three or more decades, becoming increasingly seller-friendly — especially in private equity transactions. What began as largely administrative provisions, focused on the mechanics of pursuing claims and recovering legal fees, has transformed into a sophisticated framework designed to limit seller exposure. Over time, concepts such as limited survival periods, claims thresholds, baskets, caps, insurance proceeds, tax benefits and exclusive remedy provisions have been layered in, all with the effect of reducing the seller’s post-closing liability. Notably, liability caps have shifted from covering 100% of the purchase price to a much lower range, typically between 10-20%.

Private equity sponsors have been at the forefront of this evolution. Leveraging both market trends and the widespread adoption of representation and warranty insurance (RWI), PE sellers — and increasingly, PE buyers seeking a competitive edge in auction processes — have pushed for, and achieved, “no-recourse” deals. These deals, in many respects, mirror the structure of public company acquisitions, where post-closing recourse against the seller is virtually nonexistent.

Read the article on Crain’s Cleveland Business here.