Representations and Warranties (R&W) insurance continued its march into the mainstream mergers and acquisitions space in 2015. Aided by a seller-friendly market, an ever-increasing record number of deal makers and advisors (who are now becoming more comfortable with using R&W insurance) purchased policies across the U.S., Canada, and Latin America.
We expect that in 2016 the deal facilitation, relationship protection, and risk transfer benefits that R&W insurance can provide will continue to be in high demand. Buyers holding near-record levels of cash, coupled with multiple bidders competing aggressively for attractive businesses, have continued to cause highly competitive pricing and deal terms, including limited or no post-closing recourse against sellers. With sellers providing such minimal indemnification to buyers, buyers will need to keep turning to the insurance markets to receive protection for unknown matters that could arise from the deal.
Once viewed as a novelty, Representations and Warranties insurance(“R&W,” also known as Warranty and Indemnity insurance) has now become a valuable and increasingly popular tool that can help mergers and acquisitions progress more smoothly. It offers both buyers and sellers a tailored solution designed to cover breaches in representations and warranties that are provided by sellers in the particular transaction. This form of insurance can significantly reduce both parties’ inherent risk in doing a transaction, and in turn, help to minimize the time needed to reach an agreement and close the deal.
Please contact us for more information about R&W Insurance!
Information courtesy of AIG via their Global Claims Study-US Edition 2015