Warranty and Indemnity (W&I) insurance, which seeks to bridge the gap between a buyer’s wish for deal protection and a seller’s desire for a clean exit, has become a common product in European M&A transactions. In our view, there is real value in having a thorough understanding of the process and key practical considerations for acquiring a policy. According to the Latham & Watkins 2016 European Private M&A Market Study, which examined over 170 deals signed between July 2014 and June 2016, the proportion of transactions where W&I insurance was used has increased, with around 13% of transactions now using the product. Claims data compiled by AIG (R&W Insurance Global Claims Study) indicates that claims are filed against around one in seven W&I policies globally, suggesting real protection for both buyers and benefit to sellers that would otherwise be exposed to such claims.
Planning, Timing and Readiness
In both bilateral and auction sale processes, strategic bidders can enhance the deliverability of their offers by addressing W&I insurance early in the process. Bidders can present themselves as “dealready” counterparties that pose a lower execution risk than rival bidders. Early engagement with brokers and lawyers will also reduce the risk of coverage gaps and ensure a smoother process. Brokers can also seek beneficial terms and leverage any competitive tension between underwriters earlier in the process.