Representations and Warranties (R&W) Insurance

Emerging Risk Considerations in Global M&A Transactions. Learn More Here.

Available for both buyers and sellers in a transaction, representations and warranties insurance provides protection against financial losses¹, including costs associated with defending claims, for certain unintentional and unknown breaches of the seller’s representations and warranties made in the acquisition or merger agreement.

R&W Policy Highlights

Available for both buyers and sellers in a transaction
Facilitates mergers and acquisitions by protecting deal participants from unintentional and unknown risks
Offers additional protection to the buyer beyond the negotiated indemnity cap and survival limitations in a purchase agreement
Enables the seller to reduce the amount of funds held back in escrow

Benefits of a Buyer-Side R&W Insurance Policy

Offers additional protection to the buyer beyond the negotiated indemnity cap and survival limitations in a purchase agreement
Provides the seller with a “clean exit” by reducing or eliminating the need to establish escrows or purchase price holdbacks, thereby enabling the seller to more quickly distribute greater portions of the purchase price to its investors in a private equity context or to retain proceeds in an owner/operator context
Enables the seller to reduce the amount of funds held back in escrow, enhancing the seller’s return on its capital in the current low interest rate environment
Protects buyers against the collectability or solvency risk of an unsecured indemnity provided by a seller (e.g., a financially distressed or non-U.S. seller or multiple sellers)
Distinguishes a buyer’s bid in a competitive auction process by requiring a seller to provide short survival periods, modest liability caps and reduced escrow amounts for breaches of representations and warranties in a bidder’s draft purchase agreement
Preserves key relationships by mitigating the need for a buyer to pursue claims against management sellers working for the buyer
Affords an alternative recourse to shareholders in public to private transactions

Benefits of a Seller-Side R&W Insurance Policy

Backstops negotiated indemnity obligations — a key benefit for private equity or venture capital funds at the end of their life cycle
Protects minority/passive sellers concerned with joint and several liability for indemnifying the buyer
Provides additional comfort for individual or family sellers

¹ In excess of retention

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