Transactional Risk Insurance In Canada

Introduction

In any M&A transaction, risk allocation is a primary concern, with each side wanting the other to hold the lion's share of the risks inherent in the deal. The buyer wants to minimize liabilities inherited from the target company, and will seek to employ various mechanisms to help mitigate these risks. They may negotiate for holdback and escrow mechanisms, seek broad representations and warranties and request comprehensive indemnities with long survival periods.

The seller, on the other hand, wants to limit its exposure under the transaction, make a clean break and receive the full purchase price at the closing of the deal. To this end, sellers will try to avoid escrows and holdbacks, seek narrow representations and warranties with short survival periods, and negotiate for high deductibles and low caps on indemnity obligations.