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The market for business sales is shaped by demographic change—an increasing number of business owners are facing the prospect of selling their businesses due to their age, leading to heightened competition among sellers. In addition, digitalization has fundamentally transformed the sales process: digital data rooms, AI-powered valuation tools, and structured, streamlined processes are now standard. The increased market dynamics and the expectations of international and tech-savvy buyers make professional and strategic preparation more important than ever.
Step 1: Know Your Own Business
Sellers of a business often believe they know their company well. After all, they have run it for years. Legal disputes have generally never arisen, apart from everyday disagreements with customers, suppliers, or employees. This often leads potential sellers to initiate the sale of the company without first conducting a legal review of the business. However, during the legal due diligence conducted by the potential buyer, this frequently results in the following situation, which is disadvantageous for the potential seller:
The potential buyer’s legal counsel discovers inconsistencies, contradictory documents, or even documents containing invalid or impermissible provisions in the materials that the potential seller has disclosed in a data room. If the potential buyer raises these issues with the potential seller, the latter is typically unprepared and quickly finds themselves struggling to explain the situation. This puts the potential buyer in a position of strength, allowing them to “pressure” the seller —for example, by demanding the submission of additional documents—which the potential seller may not (any longer) have—or by demanding indemnification against any risks arising from the findings during due diligence.
The potential seller can avoid this disadvantageous situation by retaining a lawyer with M&A experience to conduct what is known as “vendor due diligence” before the sales process begins. As part of this process, the retained attorney reviews the company for legal risks. This enables the potential seller to be prepared for any findings the potential buyer might uncover—as illustrated in the example above. Furthermore, the potential seller can eliminate any legal risks even before the actual sale process begins, for example, by closing gaps in the documentation, resolving conflicting information, replacing invalid provisions with valid ones, or obtaining missing documents.
Prepared in this way, the seller can enter the sales process with confidence and need not fear being caught off guard by the potential buyer.
Step 2: Concluding a Legally Sound Sales Contract
To best protect their interests, the seller should present the first draft of the sales agreement. This gives the seller the opportunity to set their terms of sale; it is then up to the buyer to amend the draft to the extent they deem necessary.
The sales agreement should first stipulate that the buyer of the company cannot subsequently assert any liability claims if they were aware of the potential risks at the time the agreement was concluded. This also includes ensuring that the agreement addresses and clearly identifies any risks identified during the vendor due diligence process. If risks exist—and cannot be eliminated prior to the conclusion of the contract—it is essential, to avoid liability claims, that the contract documentation unambiguously states that the buyer was aware of these risks at the time the contract was concluded—and thus knowingly assumed them. To this end, it is particularly advisable to include any high-risk contracts as exhibits to the contract and/or to briefly set forth the relevant facts in the body of the contract or in exhibits as well.
Furthermore, the goal of contract negotiations should be to limit warranties as much as possible to the seller’s positive knowledge. Experience shows that the buyer will not accept this for all warranties; therefore, specific warranties should be singled out where the seller has a particular interest in limiting liability to its positive knowledge—for example, in cases involving circumstances over which the seller has no control.
Finally, liability limits in terms of amount, as well as the shortest possible statute of limitations, are means of limiting liability risk. The buyer will generally not expect the seller to be liable for the entire purchase price—at least as far as operational warranties are concerned—nor will the buyer expect to be able to assert liability claims years later. With some negotiating skill, the seller’s financial risk can be significantly reduced in this way.
Step 3: Taking Out W&I Insurance
Warranty & Indemnity (W&I) insurance protects the seller against claims arising from warranty breaches and indemnification obligations. It thereby steps into the seller’s shoes and satisfies any—justified—claims by the buyer arising from a breach of warranty or an indemnification obligation.
Such W&I insurance policies have long been a common feature of transactions with a purchase price exceeding EUR 100 million. In recent years, however, there has been a trend toward their increasing use even in transactions with lower purchase prices. With the emergence of new providers, these policies have recently become a viable option even for transactions with a purchase price of less than EUR 25 million. However, it remains necessary to assess on a case-by-case basis whether the insurance premium is proportionate to the insured risk. The potential seller should factor this into their considerations early on and solicit quotes from insurers.
Taking out W&I insurance may be particularly advisable if the purchase price is to be made available to the seller in full upon closing. This is because, when W&I insurance is in place, the buyer is not required to withhold any portion of the purchase price to cover potential warranty or indemnification claims, as the buyer has a solvent debtor in the insurer.
In 2025, professional vendor due diligence will increasingly encompass not only traditional legal and financial issues but also the areas of IT security, data protection, and ESG (sustainability). Buyers are particularly focused on cybersecurity and the protection of sensitive data. In addition, continuous monitoring of risks is expected, supported by digital tools and automated checklists. This allows potential vulnerabilities to be identified and addressed early on, which further strengthens the seller’s negotiating position.
Contract structures have also become more complex: earn-out provisions and purchase price adjustments are being used more frequently to bridge differences in price expectations. In addition, buyers are increasingly enforcing longer limitation periods for warranty claims. Contract negotiations and closings are now often conducted digitally, which requires clean, digital documentation and efficient coordination processes.
The importance of W&I insurance has also continued to grow: it is used not only in large transactions but increasingly in medium-sized and smaller ones as well, since more providers are entering the market and premiums remain competitive. Innovative policies, such as those covering specific risks like cyber or ESG, offer additional protection options. Digital processes enable faster policy issuance and review, which accelerates the entire sales process.
