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 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.
For the seller:
- An R & W policy
replaces the indemnification provision and reduces the escrow to 1% or less of the purchase amount.
early and final distribution of proceeds to investors.
- Locks in the return and provides a clean
exit as contingent liabilities are covered.
- Expedites the sale by getting the indemnification
issue "off the table".
For the buyer:
- Distinguishes bid in a competitive auction, without raising the offer price.
- Eases concerns about collecting on seller's indemnification.
- Preserves relationship
with seller. In the event the seller is remaining with the company, the buyer pursues the R & W insurer, and NOT
the seller in the event of a breach.
- Expedites the sale by getting the indemnification issue
"off the table".
much does the policy cost, how much does it cover and for how long?
Which party pays for the premium and covers the deductible in case of a claim?
What is the timetable for underwriting and issuing the policy?
MY ATTORNEY ASSOCIATES HAVE TAUGHT ME..."IT DEPENDS" BUT WE CAN CERTAINLY HAVE THESE AND OTHER QUESTIONS AS THEY
APPLY TO YOUR UNIQUE DEAL ANSWERED BY THE SPECIALISTS