Step 1. There’s no insurance application. While not required, we prefer to schedule a 20 minute call with a member of the Buyer’s team to discuss the deal in general terms in order for us to prepare a narrative for Underwriters. In addition to the pre-submission discussion, terms can be provided upon our receipt of the following:
- Draft copy of the Purchase/Sale Agreement (PSA) – mandatory
- Latest audited financials – mandatory
- Year to date financials (if available)
- Schedules or Exhibits to be attached to the PSA (if available)
Step 2. The information is then taken to M&A Underwriters for review and within a week (usually less) a non-binding indication (NBI) is provided. The NBI outlines the major terms of a prospective R&W policy comprising the proposed Limits, Deductible, Premium and which of the Reps and Warranties are eligible for coverage and which may need more information before a final decision is made.
Up to this point, there is no cost incurred for the client. To move forward, a non-refundable fee is charged ($25K to $50K depending on the size/complexity of the deal) to cover the insurer’s cost to retain outside M&A attorneys to review and formally underwrite the deal.
Step 3. If the client wishes to move forward for a formal proposal, the NBI will provide instructions for payment directly to the Insurer (not subject to S/L taxes or commission).
Step 4. Upon receipt of payment, the Insurer’s counsel will be given access to the data room housing all the documents and records relevant to the target company and the due diligence performed by the potential acquirer (Buyer). This review process routinely takes less than a week to complete.
Step 5. Following their review of the due diligence materials and the data room, Underwriters and their counsel will schedule a conference call with the Applicant’s representatives (deal team members and counsel). The purpose of the call is to cover questions Underwriters based on their review of the records in the data room. This will also be the time questions are addressed on any material changes needed for the proposed policy wording.
Step 6. A few days later, the final policy proposal is issued. This proposal outlines all the Reps and Warranties to be covered along with the final pricing, Limit and Deductible terms are presented.
Step 7.. Coverage is bound effective the Closing Date of the deal, subject to receipt of the premium (again wired directly to the Insurer) and acceptance of a signed and dated statement from the Insured warranting that as of the transaction date, the designated members of the Buyer’s team are not aware of any facts, events or circumstances which could give rise to a Claim under this R&W policy. Also required will be the copy of the final signed and dated PSA.
As with anything new, the first time anyone goes through the process, R&W gets easier and easier to set up. We can walk you through the entire process.