Getting The Deal Done With Representation And Warranty Insurance

Status quo

For most M&A transactions, one of the primary concerns for the buyer is understanding the risks and liabilities that it will be inheriting through the purchase of certain assets and/or shares and reflecting such risk in the purchase price. Buyers will inevitably engage in varying levels of due diligence, with the understanding that some liabilities and risks cannot be easily identified. Thorough due diligence is prudent and vital to a successful transaction but it is by no means a guarantee that every stone has been turned, every question has been answered accurately or honestly and therefore every liability discovered. To minimize this unknown risk, buyers will employ various measures including the imposition of holdback and escrow mechanisms in the purchase agreement, and requiring the sellers to maintain certain liability and indemnity obligations for an extended period past the close of the transaction. Sellers will naturally want to receive the