In a typical company sales prices which involves the sale of the company’s shares, it is usual for the seller to provide warranties to the buyer on a broad range of issues such as title to the shares, tax, property, employment intellectual property and other commercial matters. W&I Insurance provides protection to either the seller or the buyer against financial loss rising due to the breach of warranties and indemnities given in a sale purchase agreement (SPA)
Advantage of the coverage are varied.
On the Seller side these are:
C
apping of liability
O
ffering an createnative method of recourse to buyers
A
voiding claw back on the sale procedures
E
nabling the investment committee to sign off the warranty recourse package so that the deal can actually happen
On the Buyer Side these are:
It alleviates concerns about the strength of the seller covenant
Reducing the requirement of a seller to retain liability, thereby enhancing their bid
Enhances funding options by providing additional comfort to debt providers about the level and strength of recourse
Transactional advantage that is gained from this cover include:
Enabling the seller to limit exposure to liability from any breach of warranties
Protection of the value of the buyer’s investment in the target
Facilitating the transaction by removing potential “deal-breaker” over risk allocation.
Elimination of the need for escrow, delayed payments or loan notes
Enhancement of the deal by providing security to support the warranties
Typically the gestation period for underwriting these coverages is significantly long and requires extensive discussions between the underwriter and the Assured and/or their Intermediary, if any.
DIC underwrites these risks with patience and prudence and looks forward to assisting with these enquiries.