Understanding Caps and Baskets in M&A Transactions

Understanding Caps and Baskets in M&A Transactions

Shoot The Moon
Shoot The Moon
Understanding Caps and Baskets in M&A Transactions

As an M&A advisor, we do our best to reduce the amount of surprises and prepare our clients for what’s to come during an M&A process and some of that is related to indemnification issues that could arise including things like Caps & Baskets. Tune in as we discuss Understanding Caps & Baskets in an M&A Process.


Below is what we discuss in this episode all about Caps & Baskets in an M&A Process:


  • Definition of indemnification provisions
  • Importance of indemnification provisions in M&A deals

Caps and baskets

  • Definition of caps and baskets
  • Differences between caps and baskets
  • Why caps and baskets are needed


  • Upper dollar limit of the seller’s indemnification obligations to the buyer
  • Negotiation of indemnification cap – differences between buyers and sellers here
  • Different caps for different types of losses
  • General indemnification cap vs. fundamental representations and warranties


  • Threshold amount of losses that the buyer must incur before seller’s indemnification obligations are triggered
  • Negotiation of basket size and structure – difference between buyers and sellers

When to talk about these items:

  • Might see an introduction in LOI
  • Near the end of a purchase agreement

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