mergers & acquisitions
Warranty and Indemnity insurance (W&I), or sometimes referred to as Representation and Warranty or Transaction Liability insurance, is a deal specific policy of insurance that helps support the sale or purchase of a business.
While these policies are now considered somewhat of a ‘must have’ when it comes to acquisitions and divestitures in many developed global markets, W&I insurance is still in its infancy within the Irish market.
Whether a transaction is of a complex and meaningful size, or a smaller ‘local-to-local’ deal, there are numerous benefits to be had by both sides when it comes to protecting the parties respective interests. In fact W&I insurance can be a ‘deal enabler’ as it provides the transacting parties with a greater level of comfort particularly when there are challenging contractual matters that the parties are struggling to see eye-to-eye on. An agreement to take out W&I insurance can even impact the negotiation process and influence the competitiveness of a tender when there is more than one bidding party to a sale.
For ‘buy-side’ deals, the buyer benefits from the insurance purchase in that they are able to claim directly against the policy without the need to seek recourse from the seller. For Private Equity firms who are strong proponents of M&A insurances, purchasing W&I insurance products is somewhat of a norm to which the costs of the policy are more often than not built into the enterprise value or sales price. This is a logical means of protection against risk for a sophisticated buyer which also serves to protect post transaction commercial relationships in the event of a warranty breach or other financial loss.
For ‘sell-side’ deals, the seller is able to make a far cleaner exit. More often than not, their requirement to hold funds in escrow for extended periods of time is reduced or removed altogether enabling them to access the sales proceeds far sooner.
W&I insurance policies are tailored to suit each specific deal and as such, working with appropriately skilled and experienced parties that have access to quality insurance markets is crucial, particularly the more complex the transaction. At Aquarium, we work in an advisory capacity in support of legal service providers, accounting firms and the appointed insurance brokers with a view to best positioning either the Buyer or the Seller from an insurance purchasing stand point. Marrying the parties up through our extensive network of market participants, both optimises the value derived from the policy coverage as well as making the overall insurance purchase a far smoother process.
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