Has anyone utilized Rep & Warranty insurance for an acquisition?

May 14, 2019

by a searcher from Harvard University - Harvard Business School in Nashville, TN, USA

Is there a market for R&W insurance on deals with EV of <$25mm? If so, would be interested to know which underwriters play in this range and the typical policy premium and retention. Thanks.

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Reply by an investor
from University of Notre Dame in Pittsburgh, PA, USA

Find a good broker. There are really only 20 or so underwriters that offer these policies in general and a subset do the really small ones but more are entering the market. "Market" terms are starting to come together but its still a little bit deal by deal / custom policies. Cost has come down alot over last couple years so it can make sense for lower EV deals. Its typically an "ask" of the seller more so than the buyer offering it up- unless you think you need to offer it to bridge the gap to be competitive and get the deal closed. Towers Watson just put out a market update in April 2019 that has some good data if you can track that down. For sellers the holdback likely drops from 10% of transaction value down to 0.5-1% - so you can see why they like it. Pricing is generally 2-3% of limits (so $25 million X 2-3% is the cost) with 1% retention and underwriting fees in the $25-100,000 range. We have found good success splitting the cost of the policy with the seller but that is again another negotiation. If you do a R&W deal make sure your attorney knows what to change in the deal docs to clarify who pays for what and what is covered and not covered. A risk is something comes up in diligence and then insurance company excludes it from policy late in the game. A good broker will help you define the scope of the policy - it typically a pretty fast turnaround of only a week or two. AIG data says 1 in 5 policies results in a claim which is shocking to me honestly - but most of those claims come from larger deals.. Good luck

Reply by a searcher
from Denison University in Boston, MA, USA

About 8 years ago the PE fund where I worked purchased R&W insurance on one deal in Russia from Beazley, I believe. The premium was ~$250k for the insured amount of ~$7m, if I remember correctly. So, yes, there should definitely be a market for this deal size, but I think that premiums will vary a lot depending on the specifics of the R&W.

The broker was Howden Group - I think they are global and may be able to help you. Reach out to redacted

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