Representation And Warranty Insurance (M&A)

Mergers and acquisitions are integral parts of these processes as businesses seek opportunities to use their capital. Understanding and managing the risks involved can be difficult, especially when investing in unknown markets or industries.
Representation And Warranty Insurance will support you in all these difficulties. The buyer can purchase a representation and warranty policy against his/her own losses caused by the seller’s infringements (intentional or unintentional), the seller can purchase a representation and warranty policy against the claims that may be brought to him/her by the buyer.

What is Representation And Warranty Insurance?

It is the transfer of possible future liabilities under an insurance contract at a fixed cost known as insurance premium.

It includes the declarations and commitments made by the seller in the share purchase agreement.

It provides coverage for possible financial losses, including legal costs incurred.

The policy can be arranged as “purchasing party” or “selling party”.

The selling party policy protects the seller from his own unintentional misrepresentation. The purchasing party policy protects the buyer against misrepresentation (unintentional or deliberate) of the seller.

– Risks are undertaken by the insurance markets.

Why Do We Need Representation And Warranty Insurance?

  • The compensation that the buyer can demand from the seller may not be received.
  • It also protects the seller against compensation claims from the buyer.
  • The compensation period requested by the buyer may not be provided.
  • (Tender) Creates an advantage in a transaction where there is competition.
  • In general, it minimizes the risk of the transaction.
  • It provides security to the buyer (and financiers) regarding the statements and commitments made by the seller.
  • It contributes to the whole process as it is complementary to the due diligence reports.
  • It fills the gap between seller and buyer expectations.

Can Insurance Protection be Applied in Public Offering?

Since we cannot mention the share transfer agreement in the sales made by the public offering method, the Representation And Warranty Insurance cannot be applied.

However, it is possible to cover the liabilities of the company, company directors, vendor partner or controlling partner, or even financial advisors involved in the public offering process, which arise from the prospectus, with Public Offering Insurance.