W&I insurance can be purchased by either a buyer or a seller however the buy-side policy is largely used to afford the seller a clean exit and provide the buyer a direct means of recourse as an alternative to pursuing the existing warrantors in the event of a claim. Buy-side policies are often initiated by a seller (or management team, private equity firm, infrastructure fund, bank, real estate firm or corporate) as part of an auction process and the policy is then ‘stapled’ to the transaction.

Process

The BMS Private Equity, Mergers & Acquisitions and Tax team will work with you to ensure that the W&I process works as efficiently as possible in tandem with the M&A transaction timeline. The policy is designed to support rather than replace the underlying transaction and insurers will require a robust due diligence and disclosure process to be carried out.

Premium

The premium is calculated as a rate-on-line of the policy limit being purchased. There are various factors which will affect this rate such as the nature and jurisdiction of the target business being bought, the governing law of the transaction, the scope of the warranties and whether any specific enhancements to the policy are required. These variables will be discussed at the outset of the transaction and the one-off premium will be payable once completion of the transaction has occurred.

The benefits of using W&I

Buyer Benefits

  • Mitigates risk of seller covenant strength
  • Certainty when investing in a new asset class / geography
  • Protects ongoing business relationships with management
  • Extends out insufficient SPA limitation periods
  • Bid differentiation in competitive auction process
  • Satisfy corporate governance requirements
  • Proceeds of claims can be assigned to a lender

Seller Benefits

  • Clean exit / nil recourse
  • Immediately realise sales proceeds
  • Balance sheet protection post completion
  • Prevent price chips or holdbacks


Mutual Benefits

  • Removes significant obstacle
  • Mitigates difficult negotiations
  • Bridges gaps on uncertain exposures
  • Affirmative cover for certain known risks
  • Synthetic packages may be utilised

Exclusions

W&I insurance policies will usually exclude matters that are known to the insured including matters disclosed by the seller or within the buyer’s actual knowledge. Forward looking statements, certain fines and penalties, pension underfunding and post completion purchase price adjustments are often excluded. There may also be deal specific exclusions depending on the underlying transaction i.e. target industry, jurisdiction or a specific risk that has been identified in the due diligence process.

Documents

How Warranty and Indemnity Insurance unlocks value in M&A transactions

Format: FLIPBOOK

April 15th, 2021

View Flipbook

Private Equity, M&A and Tax Practice - Asia

Format: FLIPBOOK

February 18th, 2021

View Flipbook

Sandra Lee CEO, Asia

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Martijn de Lange Managing Director

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Aris Wong Managing Director

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Tan Pawar Global Head of Private Equity and M&A

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Dean Andrews Head of Tax Liability Insurance

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Sophie Wallace Divisional Director

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Harry Leitch Director, Head of Deal Origination

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Simon Kemp Group General Counsel

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Marcus Christie M&A Insurance Analyst

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Jessica Bradley Associate Director

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