While new regulatory regimes and geopolitical uncertainties are causing many M&A deals around the globe to stall, these same disruptors are also creating growing competition among private equity firms looking to acquire companies who are feeling the pressure to divest and/or restructure.
The best transactions are not always straightforward but the smoother the transition from buyer to seller the better for all concerned. Liberty GTS’s Representations & Warranties (R&W) Insurance provides much-needed peace of mind in today’s uncertain global economic climate. Our R&W Insurance product provides comprehensive coverage that can help set expectations and mitigate the risk and uncertainty for all parties—enabling a transaction to go through quickly and without uncertainty. For a single one-off premium, and subject to terms and conditions, clients may purchase an R&W Insurance policy that may provide coverage for unknown warranty breaches and unpaid tax and settlement protection for up to seven years—this is looking to protect businesses from losses that may be incurred under the terms of the agreement long after they leave the signing room.
Despite months, and maybe even years of due diligence and the seemingly good intentions of both parties, it’s not uncommon for M&A issues to arise under sales contracts—often sometimes after the ink has dried. Issues may range from disputes about titles or intellectual property to outstanding litigations or taxes to outright fraud. R&W Insurance can help provide coverage for losses that may be incurred due to misrepresentations or breach of warranty—no matter how innocuous it is.
At GTS, we understand the nuances of large, private equity deals and customize each R&W policy to reflect the specific details of the agreement—taking into account post-sale contingencies and liabilities. To ensure that potential liabilities remain covered for the duration of the contract, and subject to terms and conditions, our policies mirror the liability time limits in the agreement and are non-cancellable.
R&W Insurance for Buyers: Coverage that’s equally as impressive as the investment itself.
GTS offers first-party protection to buyers which may cover financial losses resulting from a breach of warranty or lack of seller indemnity provisions relating to the purchase agreement of a private equity deal. These policies can sit on top of the warrantors’ cap (top-up cover), sit alongside the warrantors’ cap or straddle the cap. This type of coverage saves buyers from lengthy and expensive legal battles often needed to recoup losses related to a breach or misrepresentation by the seller, such as accounting or tax records that are not disclosed or inaccurate.In addition to protecting buyers from sellers who offer limited indemnity provisions, R&W insurance may also prove beneficial when the seller does offer a satisfactory indemnity. In this case, the buyer may instead opt for an R&W Insurance policy to cover any liabilities in order to increase the competitiveness of the offer and enhance their chances of winning the bid.
R&W Insurance for Sellers: A shift in post-closing liabilities
Sellers are generally required to provide representations and warranties to purchasers during the sale of a private business. Should there be any misrepresentations or breaches post-closing, the seller is liable for losses for the period of time set out in the agreement, usually seven years. To cover any legacy liabilities, a certain portion of the proceeds from the sale are typically held up in escrow, handcuffing sellers from using those funds.With GTS R&W Insurance, eligible defense costs and settlements would be covered by the policy—allowing sellers to spend, re-invest or disburse the proceeds from the sale immediately and move on to their next big deal. Terms and conditions apply.
R&W Insurance can be used in many situations:
- To enable parties to release or utilize their sale proceeds
- To break a deal deadlock
- To bridge a gap in expectations between parties on risk allocation
- To allow the parties to “get comfortable” with their negotiated position
- To satisfy lenders
Why buy M&A Insurance?
- Clean exit for seller
- Extends the duration and/or cap of warranties
- Faster claims settlement and pay-out
- Protects against seller credit-risk
- Unwillingness to sue the seller/protects relationships with seller