Post-Closing Indemnification

Post-closing indemnification is the contractual mechanism by which the seller compensates the acquirer for losses suffered following the materialisation of an identified risk or the breach of a representation and warranty after transaction completion. It constitutes the acquirer's primary recourse in the event of undisclosed liabilities or inaccuracies in seller representations discovered post-closing.

The indemnification regime is governed by several contractual parameters negotiated in the SPA: the individual threshold (de minimis — minimum individual claim threshold below which a single claim is not actionable, typically CHF 25,000 to 100,000), the aggregate basket (cumulative claim amount from which indemnification is triggered, typically 0.5–1% of EV), the cap (maximum cumulative seller liability, typically 20–30% of EV for general warranties), and the survival period (12–24 months for general warranties, 6–7 years for tax warranties).

W&I insurance transfers a large portion of post-closing indemnification risk from the seller to an insurer, allowing sellers to receive the net price without escrow and acquirers to maintain recourse against a solvent counterparty. The Franco-Swiss mid-market W&I market has grown considerably since 2018.

Example: 14 months post-closing of a Franco-Swiss acquisition, the acquirer receives a CHF 380,000 tax assessment for undeclared pre-closing social charges. The SPA tax warranty covers this risk over 6 years. The claim is notified within 30 days. After negotiation, the seller pays CHF 280,000 (CHF 100,000 basket deducted) — within the CHF 4.4 million warranty cap.

At Hectelion, we advise on the negotiation and calibration of post-closing indemnification regimes in Franco-Swiss transactions, balancing acquirer protection and seller acceptability.