Mergers and acquisitions are inseparable in the processes of businesses seeking 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 may purchase a Representation and Warranty policy against his/her own losses arising from the seller’s breach (whether intentional or unintentional) or against the seller’s claims for damage brought to him/her by the buyer.
What is Representation and Warranty Insurance?
It is the transfer of probable future liabilities under the insurance contract for a fixed cost known as the insurance premium.
- It includes the statements and commitments given by the seller in the share purchase agreement. It provides coverage for possible financial losses, including legal costs incurred.
The policy can be issued as “buying side” or “selling side”.
A sell-side policy protects the seller against his/her own unintentional misrepresentations.
- Risks are borne by insurance markets.
Why Do We Need Representation and Warranty Insurance?
- The compensation that the buyer may claim from the seller may not be obtained.
- It also protects the seller against claims for compensation from the buyer .
- The indemnification period requested by the buyer may not be provided.
- (Tender) Creates an advantage in a competitive transaction.
- In general, it minimizes the risk of the transaction.
- To the buyer (and financiers) of the Seller’s Representations and Warranties provides security.
- Complementary due diligence reports. contributes to the whole process.
- It fills the gap between seller and buyer expectations.
Can Insurance Protection Be Applied in Sales Through Public Offering?
Since we cannot talk about the share transfer agreement in the sales made with the public offering management, the Representation and Warranty Insurance cannot be applied.
However, it is possible to cover the responsibilities of the company, company executives, vendor partner or controlling partner, and even financial advisors involved in the offering process, arising from the prospectus, with the Public Offering Insurance.