Acquiring a new asset or business entails risk, but private equity fund managers, corporate executives, risk managers, and other stakeholders can mitigate some of the uncertainty with the right kind of contractual protections in the underlying purchase agreement. Participants in mergers and acquisitions (M&A) are also increasingly using representations and warranties (R&W insurance or reps and warranties insurance).
Marsh’s team of experienced transactional risk professionals can help you build effective R&W insurance policies to protect against unintended contractual misrepresentations made during negotiations of corporate M&A transactions. We can help you build programs that enable you to shift a significant portion of your transactional risk to an insurer rather than retaining it on your balance sheet.
Benefits for Buyers and Sellers
Once considered a specialty insurance product for which there was little demand, R&W insurance is now a commonplace feature in the global M&A landscape. Standard practice in most auction processes is for sellers to instruct buyers to obtain R&W insurance as part of the purchase agreement negotiations.
R&W insurance generally provides coverage for all representations and warranties of a target company or seller(s) contained in an M&A purchase agreement. The policy protects an insured against financial loss — including defense costs — resulting from breaches of such representations and warranties. This type of insurance can be used by public and private organizations in both traditional change of control transactions and non-control, minority investments.
The vast majority of R&W insurance policies are issued to buyers. However, either party — but not both — can be insured and can benefit from coverage.
For more information, download PDF below or contact your Marsh representative.