Warranty and indemnity and contingent risk insurance in distressed M&A transactions
Warranty and indemnity and contingent risk insurance in distressed M&A transactions

The following Insurance & Reinsurance practice note provides comprehensive and up to date legal information covering:

  • Warranty and indemnity and contingent risk insurance in distressed M&A transactions
  • What types of insurance cover are available for distressed transactions?
  • Traditional W&I cover
  • Synthetic cover
  • Contingent cover
  • Main factors affecting an insurer’s decision to offer insurance coverage for distressed transactions
  • Distress driver and deal dynamics
  • Visibility on the business
  • Geography
  • Other factors
  • More...

Despite economies around the world receiving unprecedented governmental support in this challenging period, the financial repercussions of the pandemic have been looming over the fate of many businesses, forcing some to restructure or suspend their activities and others to close their operations permanently. While it is difficult to make forecasts of the long-term effects of the current circumstances on the M&A world, it is expected that investors and corporates will look for opportunities to purchase distressed businesses to turn them around or integrate them within their existing operations. Recent developments in the M&A market shows that, in fact, this trend has already started.

HWF conducted a detailed exercise interviewing 17 insurers in the market in order to produce a paper that provides real insight and clear and extensive guidance of how warranty and indemnity (W&I) insurance and contingent risk insurance policies will be used in distressed transactions, outlining the available solutions as well as necessary requirements to get strategic insurance cover.

What types of insurance cover are available for distressed transactions?

For distressed transactions, three insurance options can be offered:

Traditional W&I cover

Traditional W&I cover can be used when:

  1. seller and/or management give warranties under the sale and purchase agreement (SPA) or warranty deed (WD)

  2. adequate disclosure is provided by the sellers on the contents of the warranty suite in the SPA or WD

  3. virtual data room or

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