Purchase Agreement Components, Part 2: Indemnification Provisions, January 8, 2021, Frank Massaro
In an acquisition, particularly an equity acquisition, a buyer must perform extensive due diligence on the target company to understand, as thoroughly as possible, the risks associated with the acquisition. In most cases, however, the buyer cannot fully evaluate or even identify all sources of risk that it will assume post-closing. To address these uncertainties and allocate these potential risks, the buyer and seller negotiate indemnification provisions that set forth the scope of each party’s obligation to reimburse the other party for certain losses associated with the acquisition that may arise following closing.