M&A experts worldwide are using an insurance policy known as a Representation and Warranty (R&W) to transfer risk from the parties in a transaction to an insurance company. R&W policies are designed to, “step in the shoes” of a seller to pay indemnification claims made by the buyer for inaccuracies of the representations and warranties outlined in the purchase/sale agreement. Due to the low cost of R&W insurance, sellers are driving the demand for these policies rather than accept large, lengthy escrow or withhold terms. Buyers are discovering how R&W insurance can enhance their bid without having to raise their offer.
Limit Capacity – Up to $100M on a single policy. Excess capacity up to an additional $400M available as needed.
Retentions – commonly 1% to 3% of the purchase price. Reduces over time
Premium – 3% to 4.5% of the limits purchased (including taxes and fees). Minimum premium is $300,000
Underwriting Fee – From $25,000 to $35,000 in addition to the premium. Covers the cost of Insurer’s attorney’s fees and due diligence costs to review and manuscript a policy. Non-refundable.
Terms – designed to match the survival period. Post survival extensions available upon request.
Here’s a conversation regarding revesting, a staple in tech M&A designed to favor not only buyers, but owners, founders, and their investors.
News came across the wire recently about a major lawsuit targeting a well-known Private Equity firm due to a post-closing dispute in a substantial M&A deal.
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From a cost perspective, there’s never been a better time to deploy Representations and Warranty (R&W) insurance in M&A deals.
The current economic environment makes it a prime time for mergers and acquisitions.
Activity in M&A in recent years bears it out. Total global M&A transactions for 2017 hit $3.2 trillion, the third year in a row annual M&A crested $3 trillion.
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