A merger or acquisition is an exciting time for your business. Work with a partner to make sure nothing slips through the cracks.
Reps and Warranties for Bids and Indemnity Obligations.
Whether you’re buying or selling, transaction insurance protects both sides against unexpected surprises that might emerge after a transaction closes. Unexpected liabilities, tax liabilities for instance, will complicate the buyer’s relationship with rollover sellers and retained management, and can threaten the buyer’s ability to achieve the desired return on its investment. Attempts to manage these risks via traditional seller holdbacks or indemnity arrangements are often met by strong opposition from sellers, placing undue stress on the deal process and threatening completion of the transaction. A comprehensive reps and warranties insurance policy can help prevent this stressors from taking place.
The Benefits of Reps and Warranties Insurance
For sellers, the benefits of reps and warranties insurance can include:
- The reduction or, in some cases, the elimination of a traditional seller’s indemnity for noncompliance with representations and warranties.
- Reduces or eliminates the need for escrow or holdback that would otherwise lessen the amount in proceeds seller’s shareholders receives during the closing of the acquisition.
- Provides the seller with a less complicated exit that includes fewer contingent liabilities associated with the sale of the company.
- Gives more extensive representations and warranties the buyer will want as part of the overall acquisition agreement, without as many qualifiers, which potentially leads to a faster resolution of the form of acquisition agreement.
For buyers, the benefits of reps and warranties insurance can include:
- Since buyers can rely on the reps and warranties insurance for indemnification protection, the buyer can make the bid look more attractive to a seller when there is little to no escrow or holdback needed.
- It can give the buyer more time to unearth problems related to the acquired business since the time for the duration of the representations and warranties is
- Enhance or increase the buyer’s protection in larger amounts than the seller might otherwise agree to.
- Improvers the likelihood of a buyer prevailing on a claim under the policy since the seller will be more likely to give more representations and warranties in the acquisition agreement.
Reps and warranties Insurance Helps Keep Things Clear and Focused
Reps and warranties insurance can be a convenient source of contract certainty, and it allows sellers to receive more consideration at closing without posing a risk of loss to the buyer. Unknown risks are always a concern, but reps and warranties insurance and tax liability insurance can give you a helpful cushion in case unexpected difficulties appear.
Reps and Warranties in the M&A Process
NFP knows it's not easy bringing buyers and sellers together. Mergers and acquisitions are a tricky, time consuming process with lots of moving pieces. Our experts have a deep knowledge of the M&A process, and can structure a series of policies that fit perfectly with the acquisition agreement in place. We’ll review all due diligence reports and other key underwriting documents to fully scope any possible coverage issues, and work with your legal counsel to make sure that specific coverage is in place to deal with any requirements or exposures related to the acquisition agreement. We’ll negotiate to avoid unnecessarily broad policy exclusions, too, so your policy performs when you need it.
Reps and Warranties with NFP
The benefits of R&W insurance are many, but it all boils down to enabling you to complete your transaction with confidence knowing you’re working with a partner who knows you, your business and your risk exposure, we also can provide a full insurance due diligence review of the target acquisition. Our success is your success. Let's work together to help make sure your deals are honest, accurate and abundant.