W&I insurance allows parties to a M&A transaction to reduce risk and achieve their commercial goals.
What is it?
W&I insurance policies provide cover for loss incurred in relation to valid breaches of warranty pursuant to an acquisition agreement (SPA) or a claim under the tax indemnity.
When would you consider it?
Sellers use W&I insurance to help achieve a clean exit while buyers often consider using it if seller liability caps are considered to be insufficient.
Why would you use it?
- Clean exit - insurance can replace liability otherwise held by the seller
- Provides enhanced security for the buyer
- As a strategic tool in an auction process
- To increase quantum and warranty survival periods for the buyer beyond the limitations available in a SPA
- Protects ongoing relationships if management remains with the acquired business
- Removes the need for an escrow
How does it work?
The policy is taken out when the deal signs or when the warranties are given. The coverage wraps around the warranties given in the SPA as much as possible. The W&I policy is a separate insurance contract between the insurer and the insured.
How much does it cost?
A one-off premium is linked to the completion of a transaction. The premium can be paid by the buyer or seller and pricing varies depending on many deal factors.
If you would like to know more about W&I insurance please click here.