Understanding Caps and Baskets in M&A Transactions

Below is what we discuss in this episode all about Caps & Baskets in an M&A Process:

Introduction

• Definition of indemnification provisions
• Importance of indemnification provisions in M&A deals

Caps and baskets

• Definition of caps and baskets
• Differences between caps and baskets
• Why caps and baskets are needed

Caps

• Upper dollar limit of the seller’s indemnification obligations to the buyer
• Negotiation of indemnification cap – differences between buyers and sellers here
• Different caps for different types of losses
• General indemnification cap vs. fundamental representations and warranties

Baskets

• Threshold amount of losses that the buyer must incur before seller’s indemnification obligations are triggered
• Negotiation of basket size and structure – difference between buyers and sellers

When to talk about these items:

• Might see an introduction in LOI
• Near the end of a purchase agreement

Listen to Shoot the Moon on Apple Podcasts or Spotify.

Listen to Shoot the Moon on Apple Podcasts or Spotify.

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