Over the last decade, M&A transaction values were pushed to all-time highs by the convergence of (i) a considerable migration of capital from public markets to private markets, most notably to private equity funds, (ii) historically low interest rates and inflation rates, (iii) a ubiquitous adoption of representation and warranty insurance (RWI) by M&A participants and (iv) historically low costs of capital in the debt markets.
To compete in this environment, buyers were forced to move expeditiously through due diligence and accept transaction terms that became more seller-friendly each year. As a result, transaction terms, especially in private equity transactions, moved toward a new set of “market deal terms”—a leveraged buyout with “no recourse” to seller (i.e., seller provided expanded representations because buyer’s only recourse for a representation breach was under its RWI policy).
