Private companies that may be sold someday have a potent weapon they can deploy when a deal gets stalled around escrow issues. This weapon is a transaction-facilitation insurance product called “representations and warranties” insurance. It benefits both the buyer and seller, and can help minimize a lengthy and costly escrow.
Transactional insurance products have seen an uptick in adoption in recent years as their price has come down and their benefits have become clearer to deal mavens. In an earlier post on reps and warranties insurance, I outlined some of the reasons why this type of insurance has become more popular lately:
- Buyers are less constrained from requesting large escrows after FASB eliminated pooling of interests in 2001. Companies that wanted to pool for accounting purposes were limited to relatively small escrows. The elimination of pooling eliminated this “collar” on the size of escrow that buyers would normally request.
- It’s been successfully leveraged as a negotiation tool in the close of sale, both by motivated buyers and eager sellers, thus creating more excitement over this type of insurance as a viable option.
- The price for this type of insurance has come down over the years; in the current marketplace, the cost is about 1 to 3 percent of the insurance limit to be put in place.
Woodruff Sawyer will be hosting a “Reps and Warranties Bootcamp” in March. This in-person event will bring together legal and insurance professionals to discuss the following topics:
- What is the profile of a deal where reps and warranties insurance can be valuable?
- How can the insurance give you an edge in an auction situation?
- How can you limit “clawback” exposure when closing a fund?
- Can it be used effectively by VCs as well as private equity firms?
- Can it cover consequential damages and IP reps?
- How can you make the underwriting process more efficient and user friendly?
Your panelists will include:
- Christa Fancher, Sr. Vice President, Business Development, Shareholder Representative Services
- Emily Maier, Group Leader Transactional Solutions, Woodruff Sawyer
- Jeff Cowhey, President, Ambridge Partners LLC
- Kit Chaskin, Partner, Reed Smith
This complimentary event will be held on Tuesday, March 10 from 8 a.m. to 10:00 a.m. at the Garden Court Hotel in Palo Alto, California. Breakfast will be served.
I encourage you to read more about the topic of reps and warranties, and then join us in Palo Alto on March 10 (and come with your burning questions) as we dive deeper into the matter.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: email@example.com.