W&I Insurance as a Strategic Tool in M&A transactions

W&I insurance policies have been a part of the M&A business for a long time now. They have proved to be an effective means of finding a compromise between the seller and the buyer when it comes to the level of liability. This means that M&A transactions may be successfully closed that might have failed without such W&I insurance.

What can buyers achieve with W&I insurance? It may help to

• increase the prospects for a successful bidding process when offering to acquire a buy-side W&I insurance policy,
• secure payment for warranty breaches,
• extend liability for the so-called enhancements beyond the scope of the SPA,
• protect the business relationship between seller and buyer.

Why is it also attractive for the seller side? It may help to

• receive the full purchase price without deductions, retention of collateral,
• reduce the risk of claims in the event of warranty breaches (clean exit),
• protect sellers who were not involved in the operative business.

With this in mind, it is always worth considering whether W&I insurance can be used in a transaction in a manner to add value to the transaction and achieve the desired result. W&I insurance is certainly not a universal remedy, and the cost incurred cannot be ignored. It should, however, be weighed against the strategic advantages such insurance offers.

Angelika Kapfer
Simone Schmatz