Forecasts of increased M&A activity, combined with a global economic climate where risk aversion is the name of the game, present an opportune moment for examining M&A insurance as a viable means of reducing risks in business transactions.
The most common type of transaction insurance is Representation and Warranties (R&W) insurance, which targets the net liabilities facing parties in M&A deals.
Intended to help smooth negotiations and closings, R&W insurance seeks a balance between buyers’ concerns for losses resulting from breaches of representations and warranties, and sellers’ interests in liability protection. As an alternative to traditional mechanisms of risk management (e.g., escrows, holdbacks, indemnities), R&W insurance addresses both buyer and seller concerns.