Reps & Warranties insurance for small deals?

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March 27, 2024

by a professional from University of Tulsa in Denver, CO, USA

Background: Deal attorney, used to work on big/middle market deals, now focus on sub $5M

Question: I have a lot of clients wanting to treat their sub $5M deals like the mid market or larger market deals. Sometimes they came from M&A at a big company or otherwise have that traditional larger viewpoint. Some of the things they expect are quite different (very rarely have stock purchases, diligence is very thorough, reps in the APA and indemnity are hotly negotiated) in the smaller space. Part of the reason for this (I am guessing) is that no one gets R&W insurance at this level. That alone changes the negotiation ecosystem considerably.

Does anyone offer this insurance for sub-$5M deals? Has anyone explored it? I am assuming it's crazy expensive relative to deal size, but I don't like assuming.

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Reply by an investor
from University of Pennsylvania in Charlotte, NC, USA
Adding to the above, I'm also aware of the small deal sell-side RWI policies being offered (only in the past 2 years or so). But I've never experienced or heard a reliable first-hand report of how well they work in practice, meaning when a claim is made. Any buyers or sellers have personal experience with making a claim under such coverage?
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Reply by a searcher
from Harvard University in New York, NY, USA
I’ve also never seen RWI on a smaller deal. As others have mentioned, I think the lack of reliable data would drive up the cost to a prohibitively high amount. Depending on exactly what the issue is that you are trying to cover, I have seen specialty insurance such as tax liability insurance used in a discrete situations. https://www.aon.com/apac/transaction-liability/tax-insurance.jsp
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