Setting The Stage: Indemnification And The Diminution In Value Conundrum

Every M&A lawyer has, at some point, sat across the table from opposing counsel arguing over a single clause for far longer than its word count would suggest is reasonable. More often than not, that clause is indemnity. It rarely makes headlines the way valuation or deal structure does, but ask any dealmaker what actually gets fought over in the last mile of negotiations, and the answer is almost always the same - who bears the loss when things go wrong and how much of it.

An acquisition is, at its core, a transfer of risk masquerading as a transfer of ownership. The buyer is paying today for a version of the business that the seller has described through representations, warranties, and disclosures. If that description turns out to be inaccurate - an overstated or uncollectible receivable, an undisclosed litigation or a buried compliance gap, the indemnity clause is what stands between the buyer and a business that is worth meaningfully less than what they paid for. In a market