Client Alert
Aaron L. Pawlitz
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At one or more times over the past few years, an M&A dealmaker might have wondered whether his or her deal was a credible candidate for coverage under a representations and warranties insurance policy (commonly referred to as an “R&W” policy). Resulting discussions might have probed topics such as the deal’s enterprise value, the target’s business, whether the target’s financial statements were audited, the amount of limit sought, and/or the deal timeline. Sometimes those deliberations and discussions occurred before a deal kicked off. In other cases, they occurred after the deal was moving—when deal parties had already invested significant resources in the proposed transaction.
If, after moving through those deliberations and discussions, a buyer determines that its deal is a candidate for R&W insurance, it might be tempting to simply hand off the next stage of the exploratory process to an R&W policy broker. Deal parties would be well-served, however, to pause for at least a moment and consider whether the information that has been made available to that broker (and which the broker will then transmit to underwriters for their consideration) will best position the underwriting opportunity. Some of that available information (such as a Confidential Information Memorandum, a Management Presentation, or other introductory materials) likely was commissioned with a different primary purpose in mind. And, although that information likely is well-suited for that primary purpose (such as attracting potential buyers into a competitive bidding process), the prospects for the R&W policy underwriting process might improve if attention is given to whether such information describes certain key topics in a manner that resonates with underwriters who are about to gain their first view of the opportunity to underwrite the R&W policy.
R&W policy underwriters generally have an admirable reputation for being responsive to a broker’s request for an expression of interest in underwriting a policy. The expressions of interest (often referred to as non-binding indication letters or “NBILs”) produced by those underwriters provide a glimpse into how the underwriting process could proceed and a view regarding what terms will be set forth in the corresponding R&W policy. Among these terms are significant elements such as potential exclusions from coverage or what diligence the underwriter will require of the proposed insured, its lawyers, or its other advisors. Because the ultimate underwriting path is significantly dependent upon the NBIL and the NBIL necessarily depends upon the underwriter’s view of the opportunity, deal parties should endeavor to provide to the underwriter a clear, initial view on key topics. This early clarity could narrow the field of topics that might result in underwriting being delayed or otherwise frustrating.
Key topics to consider include:
Understandably, the pace and posture of an M&A transaction might prevent a would-be insured from flawlessly knowing and/or communicating to R&W underwriters ideal visibility on those key topics at the stage where the proposed insured is seeking NBILs. But, deal parties who adequately illuminate these topics stand a better chance of receiving NBILs that indicate not only well-suited policy terms but also a smoother-than-otherwise underwriting process.
Lewis Rice attorneys have worked on behalf of a buyer, seller, or underwriter on more than 200 engagements involving a representations and warranties insurance policy. If you have questions regarding the underwriting process, typical policy terms, or your policy, contact Aaron Pawlitz or your Lewis Rice attorney.