Mergers & Acquisitions
M & A Overview
M&A experts worldwide are using an insurance policy known as a Representation and Warranty (R&W) to transfer risk from the parties in a transaction to an insurance company. R&W policies are designed to, “step in the shoes” of a seller to pay indemnification claims made by the buyer for inaccuracies of the representations and warranties outlined in the purchase/sale agreement.
Due to the low cost of R&W insurance, sellers are driving the demand for these policies rather than accept large, lengthy escrow or withhold terms. Buyers are discovering how R&W insurance can enhance their bid without having to raise their offer.
What We Offer
Representation & Warranty Insurance
Naked D&O Tail Insurance
For The Seller
- An R&W policy replaces the indemnification provision and reduces the escrow to 1% or less of the purchase amount.
- Enables early and final distribution of proceeds to investors.
- Locks in the return and provides a clean exit as contingent liabilities are covered.
- Expedites the sale by getting the Indemnification issue “off the table”.
For The Buyer
- Distinguishes bid in a competitive auction, without raising the offer price.
- Eases concerns about collecting on seller’s indemnification.
- Preserves relationship with seller. In the event the seller is remaining with the company, the buyer pursues the R&W insurer, and NOT the seller in the event of a breach.
- Expedites the sale by getting the Indemnification issue “off the table”.
Underwriting & Placement Process
- Secure information for underwriters:
- Acquisition agreement (draft version is acceptable)
- Seller’s audited financials
- Seller’s disclosure statements (if available)
- Offering memo
- Within 3 to 5 business days, a no cost, no obligation, non-binding indication (NBI) is provided.
- Due diligence process is commenced with selected market – requires payment of non-refundable underwriting fee.
- Conference call is arranged between the underwriters and the applicant’s attorneys.
- Final terms are issued within 2 business days of the final conference call.
Policy Basics
Limit Capacity – Full EV available from $500K up to $30M.
Retentions – commonly 1% of purchase price, subject to a 50% drop-down after 12 months.
Premium – From $10K to $20K per $1M of Limits (1.0% to 2.0% ROL). Rate scales to the lower end of the range with more Limits purchased.
Underwriting Fee – From $40,000 to $50,000 in addition to the premium. Covers the cost of Insurer’s attorney’s fees and due diligence costs to review and manuscript a policy. Non-refundable.
- Seller’s policy – checks how seller developed R/W
- Buyer’s policy – checks how buyer vetted the Seller’s R/W
Terms – designed to match the survival period. Post survival extensions available upon request.
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Contact & Location Information
- (415) 806-2356
- info@rubiconins.com
- 405 El Camino Real, #230, Menlo Park, CA 94025