Key issues in insuring an M&A deal

Introduction

Warranty and indemnity insurance (W&I Insurance) is fast becoming a common instrument to de-leverage deal risk in the Australian M&A landscape. In the past, acquirers of W&I Insurance have typically been private equity funds, venture capitalists and other 'sophisticated' investors. This is changing with W&I Insurance becoming more common in all types of negotiated M&A transactions, with general corporates and individuals alike being lured by the benefits that such insurance has to offer.

What is W&I Insurance?

In a nutshell, W&I Insurance provides cover for losses arising from a breach of warranty (or in certain cases under an indemnity) in connection with a merger or acquisition. It is essentially the use of insurance capital (eg, an insurer's balance sheet) to facilitate a transaction by transferring the transaction risk from the seller or the buyer to the insurer.