M&A Boot Camp booklet 2023 - Flipbook - Page 74
Introduction to Indemnification
What is indemnification? What does the word “indemnify”
mean in this context?
Buyer’s mindset:
– “We have agreed to pay the negotiated purchase price on the basis that: (a)
the target’s business and operations are as represented to us; and (b) the
target does the things it promised to do prior to closing. If either of those
expectations is not met, then we want to be made whole after the closing for
any and all resulting damages.”
Sellers’ mindset:
– “We no longer get the benefit of any upside of the business after closing, so
we want to limit our downside exposure as well. There are always risks
inherent in doing business, and because the buyer is reaping all of the
benefits of running the business after the closing, it should also bear these
risks. We need certainty that we can move on and use the proceeds of sale
without the constant possibility that the money will be subject to claw back
by the buyer.”
Hogan Lovells US LLP
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