Frequency/market practice: A cap can range from 1%-100% of the purchase price. The average cap amount has declined over the years due to the increased use of representations and warranties insurance. This is because caps are generally higher in deals without representations and warranties insurance than in deals that include representations and warranties insurance.
Frequency/market practice: Caps commonly apply to indemnification obligations in the whole agreement (although breach of seller's/target's covenants are often carved out of the cap). Other limitations on liabilities (e.g., baskets) commonly apply only to the representations and warranties. Specific representations and warranties (particularly fundamental representations and warranties) or other items in the agreement (such as special indemnities) may have different cap amounts.
Frequency/market practice: Fraud is usually excluded from the cap. Certain fundamental representations and warranties (e.g., authority, capitalization, title to assets/equity and due organization) are also commonly excluded. Tax and specific areas of concern are often excluded, or may have specific higher caps. Breaches of seller's/target's covenants and the brokers'/finders' fee representation are also often carved out of the cap.
Frequency/market practice: Very common. Baskets in the US can be structured either as deductibles or tipping baskets. In a deal with a deductible, the indemnifying party is only liable for losses over a stated amount. If the parties agree to a tipping basket, the indemnifying party is liable for the total amount of losses once they exceed a specified threshold.
Frequency/market practice: A general survival of 12-24 months is common.
Frequency/market practice: It is common to carve out fraud. In addition, tax, employee benefits and environmental matters are commonly carved out and often survive until the expiration of the applicable statute of limitations. Other representations and warranties often carved out include authority, no conflict, capitalization, due organization, title of assets/equity and brokers'/finders' fees.
Frequency/market practice: Fairly common. While representations and warranties insurance was previously used primarily in the private equity space, it has been increasingly and widely adopted among strategic buyers as well As demand for representations and warranties insurance and the number of insurers has increased over the years, insurers have been more willing to offer representations and warranties insurance for alternative deal structures, such as carve-outs and public-to-private transactions, for example.