Pros and Cons of RWI in Merger and Acquisition Transactions

Representation and warranty insurance (“RWI”) has been around for some time. Historically, it was most commonly used in large transactions, often involving publicly traded companies. However, in recent years it has become much more common in smaller, private, “middle market” transactions. As the name implies, RWI provides insurance protection to a party (either the buyer or seller) in the event the representations of the seller in an asset purchase agreement, stock purchase agreement or merger agreement are breached and the buyer suffers damages as a result of such breach. In some cases, it may also provide protection for the buyer in the event of outright fraud by a seller.
Predictably, there are pros and cons to RWI that must be carefully weighed by both buyer and seller. Furthermore, that process needs to start early because the decision to seek RWI will impact negotiation of the purchase or merger agreement.
PLDO partner and business attorney, William F. Miller, describes RWI benefits and what the insurance does not typically cover in his latest advisory, The Pros and Cons of Representation and Warranty Insurance in Merger and Acquisition Transactions. He also offers practical and financial considerations to help organizations make informed decisions. If you have questions about RWI or other business matters, please contact PLDO Partner William F. Miller at 401-824-5100 or email [email protected].