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RESEARCH AND BRIEFINGS

The Sell-Buy Flip

 


It is increasingly common in the private company market for entities and individuals who are disposing of an asset or shareholding to seek to restrict their potential post-sale liability. Claims for breaches of warranties given by the sellers and management under the Sale and Purchase Agreement (SPA) are on the rise, and corporates and financial investors need to understand the mechanics behind the complex world of transactional risk insurance.

There is now a clear bias towards limited or no recourse deals, driven by the desire by sellers to achieve the holy grail of a ‘clean exit’. This penchant for nil recourse transactions has seen an increase in the number of transactions where the seller(s) requires the buyer(s) to take out a buy-side warranty and indemnity (W&I) insurance policy.

This process for the procurement of W&I insurance has, in the world of transactional risk insurance, come to be described colloquially as the ‘sell-buy flip’. Although the sell-buy flip has overwhelmingly been a feature of transactions where the sellers are private equity backed, from our experience it is becoming increasingly common amongst corporates sellers, in order to facilitate a clean exit.

The purpose of the Sell-Buy Flip paper is to outline:

  • The steps involved in the sell-buy flip„.
  • Some provisions that are included in SPAs where the use of W&I insurance and a sell-buy flip is being contemplated.„
  • The potential pitfalls in running a sale process that involves a sell-buy flip.„
  • Tips and tricks to mitigate these potential pitfalls (or eliminate them completely where possible)„„.
  • Some global trends in relation to sell-buy flips.

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226 827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions.

This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from Marsh on request.