RWI: A Valuable Tool Or A Stop-gap Solution

1. Introduction

Acquisitions of companies can be simultaneously challenging and fascinating, given the gamut of issues one needs to take care of. Regardless of how clean and well-governed a target can be, the scope of any diligence will always be confined by the level of information provided to the buyer and its advisers. Consequently, while executing the transaction documents, the seller(s) have to provide customary and deal-specific representations and warranties which, in turn, are backed by indemnities that protect a buyer for loss suffered pursuant to their breach. Known colloquially as reps, they are material facts, statements and assertions by a party about itself and about the target being acquired. An indemnity obligation can be secured in by either putting an agreed sum which is a certain percentage of the total consideration in escrow, or permit the buyer to hold back this amount for a defined period or, as is increasingly common, by obtaining insurance