Warranty and Indemnity insurance can help facilitate and protect against financial loss arising from Mergers and Acquisition (M & A) agreements. Available to both parties in a transaction, our policies can minimise seller liability on business exit, enhance bids by potential buyers, and bridge differing indemnification expectations.
While the timing, size and investment strategy behind each portfolio varies, every business looking to purchase W & I insurance will have their own reasons for doing so. An example of this could be whereby a buyer, bidding on a target business, which does not anticipate the use of an insurance solution as part of the sale package, a bidder might include in its offer document a statement that it is willing to take out a W&I policy, and cap the seller’s liability for warranty claims at £1.
Where competitive stakes are high, as is often the case for quality assets, this can be an attractive proposition for a seller as it provides a clean break. This may therefore give the bidder a competitive edge, especially where the seller is a family/individual and/or requires an accelerated exit.
Initiating the W & I process and building the insurance into the legal documentation, with all the requisite marketing materials, ensures bidders are clear on the position of the sellers up front.
W & I insurance offers a number of benefits to both buyers and sellers:
As well as W & I insurance, we can arrange a full suite of transaction liability insurance products, including insurance for contingent tax and other liabilities arising in the context of M & A.
We can also access a simplified range of transaction liability products aimed to speed up the process for private equity firms and businesses pursuing a portfolio of add-on acquisitions for existing or newly acquired platform companies.
Warranty and indemnity insurance can be obtained either by the buyer or the seller in a transaction to protect either party from unknown or unforeseen liabilities resulting in financial loss from a breach by the seller of the warranties (and/or indemnities) contained in the sale agreement.
In a typical transaction, the buyer will seek broad warranties from the seller to protect against losses which the target (or the buyer) may suffer as a result of a breach of those warranties. A seller on the other hand, will seek to limit the warranties it gives to the buyer. W & I insurance is used as a key tool used to bridge this gap.
From the buyer’s perspective, a buy-side W & I insurance policy will, subject (usually) to a policy excess depending on the target sector and jurisdiction, serve as the direct (and in many cases only) recourse for breach of the warranties given by the seller.