Trésorier/Treasurer magazine - N°91 - Oct/Nov/Dec 2015 - (Page 42)

WARRANTY & INDEMNITY INSURANCE: LE MAGAZINE DU TRESORIER / TREASURER MAGAZINE - N°91 - OCT / NOV / DEC 2015 Achieving a clean exit for the seller and a way to make a more competitive bid for the buyer 42 Although M&A activity may not have grown as some would have anticipated - or hoped - over the past four years, demand for warranty and indemnity (W&I) insurance has boomed since the financial crisis, particularly in Europe. We have seen 166% growth in the number of W&I insurance policies being placed on European M&A transactions, testament to the fact that W&I insurance is now widely regarded as an effective tool in getting a deal across the line. It is increasingly common for sellers to build a W&I insurance structure into the sale and purchase agreement (SPA) and auction process, which is a key driver in the increased activity in the W&I insurance market. This structure allows a seller to exit with no warranty exposure, with management typically giving warranties with a significantly reduced liability cap, perhaps 1% of the transaction value. The W&I insurance policy is used as part of the deal marketing process, with a broker's engagement switching to the successful bidder. Warranty & Indemnity insurance is now widely regarded as an effective tool in getting a deal across the line. Case Study: A €130m company is 30% owned by a PE fund and 70% by a local Company. The PE firm wants to sell its stake. Following an auction bid, the best offer requires a warranty up to the purchase price for Title warranties and up to 25% of the price for the other warranties for a two years period. The fund must be closed in the next 6 months and as such cannot assume any liability with regards reps and warranties. The W&I insurance solution: The Fund and the Corporate accept to give the warranties to the Buyer. The Fund is paying the Buyer an insurance cover to transfer 100% of its W&I liability. The fund has transferred 100% of its liability to an insurance solution and can be closed in the next months. The Buyer is fully protected up to the required limit. From a buy-side perspective, with high demand for quality assets, bidders are using W&I insurance strategically to make their bid more compelling in an auction process. By offering the seller a more limited warranty cap in the SPA, a bid will often be considered more attractive. Indeed, recent auctions have seen up to three bidders integrating a W&I policy to enhance their bid. In some situations, a bidder has not even been selected as they were not planning to use a W&I policy. Insurers continue to build teams of lawyers and market practitioners who have significant M&A experience into their businesses. There are now over a dozen insurers that offer primary W&I insurance solutions in M&A transactions in Europe; many insurers are increasing headcounts in their respective teams to satisfy current demand.

Table of Contents for the Digital Edition of Trésorier/Treasurer magazine - N°91 - Oct/Nov/Dec 2015

Cover
Table of contents
EDITORIAL
FINANCIAL HIGHLIGHTS Luxembourg Tax News
INTERVIEW Ben Poole Editorial Services
FOCUS
To What Extent Should Treasurers’ Activities be further centralized?
Capital Markets Union (CMU)
Upsurge in fraud
FORUM
CEO impersonation
Using analytics to cope with uncertainty and volatility for treasury
IFRS 9 : Nécessite d’une reorganisation bancaire majeure
Taux zéro : de nouvelles stratégies pour un nouveau monde
Investing surplus cash in repos
Warranty & indemnity insurance
CORPORATE FINANCE
Making the switch from Excel to a Treasury System
Corporate treasury in the digital age
Fini le casse-tête des paiements internationaux pour les entreprises !
Bank Independent Cash Pooling
Gérer l’offre de retraites : un choix complexe pour l’entreprise
15 MINUTES AVEC CIAM
THE FINANCIAL RISK OBSERVATORY
NEWS
LIFE BEYOND NUMBERS

Trésorier/Treasurer magazine - N°91 - Oct/Nov/Dec 2015