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Growing Interest in Insuring M&A Risks

Private equity firms have been using transactional coverage for some time; now more corporates are getting into the act.

By Susan Kelly | Updated on May 11, 2016
Transactional insurance for M&A risksMergers and acquisitions may seem like the domain of bankers and lawyers, but more and more, insurance companies are getting involved. A recent report shows that insurers increasingly play a role in backstopping the assurances that sellers provide to buyers.

Indemnity packages in M&A transactions traditionally use escrow accounts into which a portion of the deal proceeds are deposited for a set amount of time. That money can be used to compensate the buyer if there are breaches in the representations and warranties made about the business by the seller.

Private equity firms pioneered the practice of substituting representations and warranties insurance for some or all of the escrow amount. That allows the seller to get the full proceeds of the deal as soon as it closes, instead of having to wait a year or more for the portion set aside in the escrow account.

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