Representations and Warranties Insurance

Representations and Warranties Insurance can be constructed for either the Buyer or the Seller involved in an M&A Transaction. R&W coverage protects the insured parties from breaches of the representations and warranties in the Purchase Agreement that are unknown at the time the Transaction is consummated. The coverage may benefit both the Buyer and the Seller in helping to overcome obstacles to negotiating the Transaction.

Potential Benefits for Bidders and Acquirers:

  • Enhances your bid by enabling reduction of the Seller’s indemnity escrow
  • Extends the survival period of the Seller’s representations
  • Avoids potential future conflicts with management who are retained in the acquired business, but who were also Sellers
  • In most cases, provides a more attractive credit profile than the Seller’s indemnity obligations

Potential Benefits for Sellers:

  • Enables reduction of the indemnity escrow, thereby increasing cash available to the Seller immediately upon the sale of the business
  • Enables more attractive limitations on the Seller’s indemnity obligations

Tax Opinion Insurance

Tax Opinion Insurance provides financial protection in the event that the insured tax treatment is successfully challenged by the IRS or another specified taxing authority. Tax Opinion Insurance can potentially be applied to situations involving:

  • Energy Tax Credits
  • Historic Tax Credits
  • S-Corp and REIT Qualifications
  • Tax Free Spin-Offs and Reorganizations
  • Specific tax matters that do not qualify for coverage under a Representations and Warranties policy, and remain a cause for concern by the Buyer

Contingent Liability Insurance

Contingent Liability Insurance can help to overcome an impasse encountered between the Buyer and Seller due to a known exposure within the target company. While such situations and their eligibility for coverage are always fact-specific, typical circumstances may involve the Buyer’s reluctance to take on exposure of adverse judgment on a specific piece of pending litigation, or the financial risk to the Buyer or Seller of bearing a termination fee if forced to walk away from a Transaction due to regulatory obstacles or other specified causes beyond the party’s control. Contingent Liability Insurance could serve to bridge any resulting impasse in negotiations, enabling the Transaction to close by transferring the specific risk away from both the Buyer and Seller.