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What Directors Should Know About Changing Market for M&A Insurance

You are in a special meeting of the board of directors to discuss the acquisition of a key supplier for $400 million. As a standalone business, the target firm generates strong earnings, but there are an enormous amount of potential synergies to be gained by combining the target’s operations with yours. The upside of the deal is clear, but you are concerned that the seller of the business, a private-equity firm that has put the company through a rigorous auction process, is willing to provide only a $10 million post-closing escrow to support the representations about the business made in the acquisition agreement. You are accustomed to having a post-closing escrow, of at least 10 percent of the deal value, in place and your company’s deal team negotiated rigorously for a larger escrow.

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