An exciting innovation is coming to Representations and Warranty insurance world, and if you’re a Buyer or Seller in the lower middle market, you need to know about it. This new product is especially useful to serial acquirers.
In short: insurtech is coming to M&A… sort of.
Yes, the first online insurance product covering M&A transactions is here.
The Underwriters at Fusion Specialty have just launched an online platform for providing R&W policies. They’ve teamed up with io.insure to streamline the underwriting process for insuring M&A transactions.
This is a natural evolution as insurance companies seek to be more efficient and less cumbersome, as well as cut costs during this key part of writing a policy.
Underwriting has come a long way.
First, Underwriters were forced to visit storage rooms and comb banker boxes crammed with documents. Then came virtual data rooms.
No comes this online platform.
There are two routes for those seeking this coverage with this service.
The easiest: prepackaged, off-the-shelf R&W policies, either Sell-Side or Buy-Side. This type of policy will not conform exactly to the reps and warranties in the Purchase-Sale Agreement. Rather their policy will contain broadly worded reps commonly found in most agreements, covering the areas of legal, governance, financials, IP, and HR. It’s kind of like template.
Any specialty reps are not covered. But the parties can set up their own “side deal” in this case.
This process reduces the time to review a risk and underwrite it. And while “off the shelf,” it still provides a broad scope of coverage for smaller deals.
One of the ways it saves time is that there is no time-consuming underwriting call needed.
That means no need to have lawyers, accountants, and other pros who charge by the hour to the tune of hundreds or thousands of dollars each, sitting on that call. Fusion surveyed firms involved in M&A, and this is their #1 gripe.
Instead, the diligence team of the Buyer or Seller fills out a secure digital application and questionnaire, attaching any relevant diligence reports from their legal team, CPA, and the like. The Underwriters review that information and contact the applicant with any questions.
This route is perfect for deals under $100M as it will accelerate time to close. Plus, it is 20% cheaper than traditional R&W coverage thanks to a 50% “discount” on the Underwriting Fee and the elimination of the underwriting call.
This, of course, is fixed template platform. But if you want a customized policy, Fusion can do that as well online. You go through the same process as the template and end up with more traditional style R&W policy.
In either case, the Seller benefits from having a policy in place because it makes them a more attractive target, increases the potential for a higher valuation, and enables a clean exit.
For Buyers, they protect their investment and increases confidence in the transaction by decision-makers.
It’s a win-win all-round.
Please contact me, Patrick Stroth, for more information on this and other M&A insurance optionsThe Next Evolution in Representations and Warranty Insurance