Market Trends: What You Need to Know
RWI is an increasingly important feature of private company M&A transactions. Every other year since 2005 the ABA has released its Private Target Mergers and Acquisitions Deal Point Studies (the “ABA studies”). The most recent two of these studies (2017 and 2019) have looked at representation and warranty insurance (“RWI”) in private company merger and acquisition (“M&A”) transactions.
As shown in these two most recent ABA studies:
RWI References
The percentage of transactions expressly referencing RWI increased from 29% in the 2017 study to 52% in the 2019 study.
Bound by Closing
58% and 59% of the deals with RWI reported in the two studies, respectively, did not expressly require the policy to be bound at Closing.
Market Trends: What You Need to Know - As shown in the American Bar Association's Private Target Mergers and Acquisitions Deal Point Studies. Originally.
Market Trends: What You Need to Know As shown in the American Bar Association's Private Target Mergers and Acquisitions Deal Point Studies. Originally Published in.
Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Over the eight ABA studies (2005-2019), indemnity caps have declined as a percentage of transaction value (whether as mean or median). This decline has been fairly consistent over the period of the ABA studies, despite an uptick in the mean of indemnity caps following the financial recession of 2008 that was almost certainly the result of the private company M&A market being “buyer friendly” during this time period.
The 2017 and 2019 ABA studies each show that indemnity caps are lower in reported deals where representations and warranties insurance are referenced in the deal documents.
Market Trends: What You Need to Know
As shown in the American Bar Association s Private Target Mergers and Acquisitions Deal Point Studies:
Since 2011, the use of after-tax indemnity limitations has steadily decreased, appearing in 32% of deals reviewed in the 2019 study. Notwithstanding potentially limited economic benefits of an after-tax indemnity limitation, these provisions are still seen, though decreasingly so, in M&A transactions.
After-tax indemnity limitations grew in prevalence across the first three ABA studies (2007-2011), to a peak of 53% for deals reported in the 2011 study. However, 2011 was the first and only year that inclusion of the limitations represented the majority position.