Nuts & Bolts of Representations and Warranties Insurance
Representations and warranties insurance (“RWI”) is highly customized insurance for an M&A transaction’s risk allocation provisions. When negotiating a purchase agreement, a purchaser typically will seek contractual assurances, backed by an escrow or a holdback, regarding the business being purchased. However, this negotiated risk allocation can be impractical in certain situations, such as when a private equity seller is nearing the end of its fund life and needs to be able to return funds to its investors, or an ESOP is a significant owner of the seller. This client alert provides a brief primer on the structure, coverage, exclusions, retention and costs of typical RWI policies, and elaborates on various considerations for sellers and purchasers in using RWI policies as part of the risk allocation in M&A transactions.
The full alert is available here.