Stapled W&I policies and synthetic policies will likely be increasingly common features of E&I transactions, although their feasibility should be assessed case by case.
Warranty and indemnity insurance (W&I) is a long-established feature of M&A transactions in Europe, especially with private equity sellers. The 10th edition of the Latham & Watkins Private Equity Market Study shows that nearly 48% of all European M&A transactions in 2023 involved W&I with 65% of private equity sellers favouring W&I-backed exits. However, on the flipside, our market study indicates that on an aggregate basis only 35% of energy and infrastructure (E&I) transactions involved W&I, with varying levels of adoption across European geographies.
Certain recurring characteristics of E&I transactions could explain the dislocation in this trend: the sometimes challenging nature of the assets and jurisdictions for these transactions and the assets themselves frequently having a fragmented shareholder base, which usually means that there are no negotiated business warranties to be covered.
Along with a recent softening of the W&I market, two developments can help bridge this gap for E&I transactions: stapled policies and synthetic coverage.