Representations and warranties insurance (R&W insurance) is being used by middle-market M&A deal professionals at an unprecedented rate. In this article, we will discuss market trends in the use of R&W insurance, key drivers behind this explosive growth, the underwriting process and key considerations for buyers and sellers in structuring transactions with R&W insurance.
What Is R&W Insurance?
R&W insurance is a transactional risk product that provides coverage to a buyer or seller against losses arising out of a breach of the seller’s or target company’s representations and warranties in connection with an acquisition, divestiture, merger, or other business transaction. R&W insurance is an effective tool in bridging gaps between buyers and sellers negotiating M&A transactions. For example, R&W insurance is often effective where a buyer cannot convince the seller to agree to the desired level of indemnification, or alternatively, where a buyer has concerns about the seller’s ability to satisfy its indemnification obligations after closing. As noted below, R&W insurance also serves as an effective component of a buyer’s bid package in a competitive auction as a means to differentiate its bid.
