Representation and Warranty Insurance May Enhance Acquisition
Transactions
Once reserved for only very large transactions, recent changes
in the insurance markets have made representation and warranty
insurance policies (RWI) more available for merger and acquisition
transactions involving smaller dollar amounts.
In most acquisitions, the seller and its owners are required to
make substantial representations and warranties about the business
they are selling and buyers rely upon those representations in
deciding to complete the transaction. Sellers typically indemnify
the buyer for losses incurred because of a breach of those
representations, creating possible personal liability for a period
of time after closing. Buyers face the risk that the sellers, even
if personally liable, no longer have assets available to pay for
the loss incurred from a breach. Further complicating the issue are
transactions in which some of the seller's ownership group
remain as co-owners
