M&A and investment in the game sector Realising investments and acquiring game businesses this take the form of cash, shares in This effectively transfers all or most the buyer or a combination of both? of the liability for breaches of the Will all consideration be paid on warranties from the sellside to a third closing, or will a portion be held back party insurer in exchange for the in escrow to cover certain claims payment of a premium (often around under the sale documentation? 1%-2% of deal value). The cost of this The existing investors will also want may be shared or may be paid by to ensure, among other things, that one side only. Buyers will also often any residual liability in respect of push for the sellers to retain some warranties (for example, the ability residual liability, so that they have of the buyer to attempt to claw ‘skin in the game’ on warranties back part of the price paid for the and therefore carry out a proper business) is very limited. In the UK disclosure exercise. context, existing investors such as VC With respect to founders and funds will generally only agree to give other key employees, the buyer title and capacity warranties on a or inbound investor(s) will, in most several basis, with material business cases, want to tie them into the warranties usually falling on the business post-closing, at least for founders or management team. a few years. They will see this as key This can create gaps in warranty for continuity and locking in historic, coverage and also put stress on in-depth knowledge. the ongoing relationship between Incentivising founders to stay on the buyer and the founders or could involve an earn-out where management team, which is often the founders need to ensure the crucial to realising the full value of company performs according to pre- an acquisition. As a result, it’s agreed metrics to receive more sale becoming increasingly common proceeds. Earn-outs are also often to see warranty and indemnity used to bridge differing opinions insurance used on deals. as to valuation on the buyside and sellside – with the buyer agreeing to pay an upfront price based on 21