AUSTRIA Law and Practice Contributed by: Horst Ebhardt, Philipp Kapl, Hartwig Kienast and Matija Bernat, Kinstellar
relevant. While W&I insurance is less prevalent among corporate sellers, it is increasingly adopted in larger or cross-border transactions. Overall, Austrian market practice shows limited diver - gence in approach between PE and corporate par - ticipants. While PE-driven transactions tend to rely on standardised, insurance-backed liability frameworks, corporate-driven transactions may be more toler - ant regarding a standard warranties and indemnities regime. 6.9 Warranty and Indemnity Protection For M&A transactions in Austria involving PE-backed sellers, the warranty and indemnity regime is typi - cally structured to ensure a “clean exit” with minimal residual liability. The seller usually provides funda - mental warranties (eg, title, capacity, authority) with limited operational and business warranties, which are typically fully covered by a W&I insurance policy. Tax indemnities are also commonly insured. In PE exits, management typically does not provide separate warranties or indemnities to the buyer. Instead, all contractual protections – including war - ranties and indemnities – are generally given by the seller(s) alone. While management may be involved in the disclosure process or provide factual information during due diligence, it does not assume contractual liability. In Austria, it is standard practice in PE transactions for disclosures made in the data room to exclude liability under the warranties (unless such disclosures create the foundation for indemnities of the seller, as agreed in the transaction documentation). It is common prac - tice to define in the purchase agreement which docu - ments and information are deemed disclosed and under what conditions such disclosure is considered valid (eg, via data room or specific disclosure sched - ules). In PE transactions, general warranties are usually capped at an amount equal to 10%–25% of the pur - chase price, with caps commonly negotiated at the lower end of that range when the seller is a PE fund. Fundamental warranties (eg, title, ownership) may be subject to higher caps, often up to 100% of the pur -
chase price. Specific indemnities (eg, tax) are gen - erally uncapped and negotiated on a case-by-case basis. Claim periods typically last for 12 to 24 months post-closing, with extended periods of up to five to seven years for fundamental warranties. Certain risks (eg, tax) are often covered by separate indemnities with distinct caps and durations. It is also common to agree on a de minimis threshold per individual warran - ty claim (with similar claims often grouped together) and a basket. Once the basket is exceeded, the buyer is entitled to reimbursement of the entire amount of all justified warranty claims, not just the excess (first euro coverage). 6.10 Other Protections in Acquisition Documentation Additional protections included in acquisition agree - ments include the following. • W&I insurance: this is more often used in PE transactions, covering business warranties, often fundamental warranties, and also tax warranties and indemnities. It enables PE sellers to achieve a clean exit with very limited seller liability, and pro - vides buyers with a recourse against an insurance provider. • Escrow or retention arrangements: such agree - ments usually amount to 5%–10% of the purchase price with durations of between 12 and 24 months. They mainly secure business warranties and tax indemnities, while fundamental warranties may be treated separately. Where comprehensive W&I insurance is in place, escrow arrangements are not required. • Earn-outs and deferred consideration: such regimes are increasingly used to bridge valuation gaps or align incentives. 6.11 Commonly Litigated Provisions Litigation in connection with PE transactions does occasionally occur in Austria. However, most trans - actions are thoroughly negotiated and typically sup - ported by W&I insurance, which significantly reduces the post-closing dispute potential among the transac - tion parties. When disputes do occur, they typically relate to purchase price mechanisms (eg, earn-outs, completion accounts), alleged breaches of warran - ties or indemnities, undisclosed risks or post-closing
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