Effects on the indemnification clause of applying a 'multiple' for share pricing

Effects on the indemnification clause of applying a ‘multiple’ for share pricing

In acquisition agreements, the value of a company is often based on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) or another parameter. If, in retrospect, the communicated figures appear to paint an overstated picture of the company, the indemnification mechanism will usually provide for compensation at a rate of EUR 1 in damages for each euro in deviation of the communicated net equity (or another formula whereby the adapted price equals the established lesser value). However if the correction involves a parameter to which a multiple was applied for price determination purposes, then that same multiple…


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